Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-8151 December 16, 1955

VIRGINIA CALANOC, petitioner,

vs.
COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE CO., respondents.

Lucio Javillonar for petitioner.

J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.

BAUTISTA ANGELO, J.:

This suit involves the collection of P2,000 representing the value of a supplemental policy covering
accidental death which was secured by one Melencio Basilio from the Philippine American Life
Insurance Company. The case originated in the Municipal Court of Manila and judgment being
favorable to the plaintiff it was appealed to the court of first instance. The latter court affirmed the
judgment but on appeal to the Court of Appeals the judgment was reversed and the case is now
before us on a petition for review.

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal
and Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance
Company in the amount of P2,000 to which was attached a supplementary contract covering death
by accident. On January 25, 1951, he died of a gunshot wound on the occasion of a robbery
committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaan streets. Virginia
Calanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she demanded
the payment of the additional sum of P2,000 representing the value of the supplemental policy, the
company refused alleging, as main defense, that the deceased died because he was murdered by a
person who took part in the commission of the robbery and while making an arrest as an officer of
the law which contingencies were expressly excluded in the contract and have the effect of
exempting the company from liability.

The pertinent facts which need to be considered for the determination of the questions raised are
those reproduced in the decision of the Court of Appeals as follows:

The circumstances surrounding the death of Melencio Basilio show that when he was killed
at about seven o'clock in the night of January 25, 1951, he was on duty as watchman of the
Manila Auto Supply at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty.
Antonio Ojeda who had his residence at the corner of Zurbaran and Oroquieta, a block away
from Basilio's station, had come home that night and found that his house was well-lighted,
but with the windows closed; that getting suspicious that there were culprits in his house,
Atty. Ojeda retreated to look for a policeman and finding Basilio in khaki uniform, asked him
to accompany him to the house with the latter refusing on the ground that he was not a
policeman, but suggesting that Atty. Ojeda should ask the traffic policeman on duty at the
corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said
corner and reported the matter, asking the policeman to come along with him, to which the
policeman agreed; that on the way to the Ojeda residence, the policeman and Atty. Ojeda
passed by Basilio and somehow or other invited the latter to come along; that as the tree
approached the Ojeda residence and stood in front of the main gate which was covered with
galvanized iron, the fence itself being partly concrete and partly adobe stone, a shot was
fired; that immediately after the shot, Atty. Ojeda and the policeman sought cover; that the
policeman, at the request of Atty. Ojeda, left the premises to look for reinforcement; that it
turned out afterwards that the special watchman Melencio Basilio was hit in the abdomen,
the wound causing his instantaneous death; that the shot must have come from inside the
yard of Atty. Ojeda, the bullet passing through a hole waist-high in the galvanized iron gate;
that upon inquiry Atty. Ojeda found out that the savings of his children in the amount of P30
 in coins kept in his aparador contained in stockings were taken away, the aparador having
been ransacked; that a month thereafter the corresponding investigation conducted by the
police authorities led to the arrest and prosecution of four persons in Criminal Case No.
15104 of the Court of First Instance of Manila for 'Robbery in an Inhabited House and in
Band with Murder'.

It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer
of the law" or as a result of an "assault or murder" committed in the place and therefore his death
was caused by one of the risks excluded by the supplementary contract which exempts the company
from liability. This contention was upheld by the Court of Appeals and, in reaching this conclusion,
made the following comment:

From the foregoing testimonies, we find that the deceased was a watchman of the Manila
Auto Supply, and, as such, he was not boud to leave his place and go with Atty. Ojeda and
Policeman Magsanoc to see the trouble, or robbery, that occurred in the house of Atty.
Ojeda. In fact, according to the finding of the lower court, Atty. Ojeda finding Basilio in
uniform asked him to accompany him to his house, but the latter refused on the ground that
he was not a policeman and suggested to Atty. Ojeda to ask help from the traffic policeman
on duty at the corner of Rizal Avenue and Zurbaran, but after Atty. Ojeda secured the help of
the traffic policeman, the deceased went with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased was standing in front of the main gate of said
residence, he was shot and thus died. The death, therefore, of Basilio, although unexpected,
was not caused by an accident, being a voluntary and intentional act on the part of the one
wh robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it is out considered
opinion that the death of Basilio, though unexpected, cannot be considered accidental, for
his death occurred because he left his post and joined policeman Magsanoc and Atty. Ojeda
to repair to the latter's residence to see what happened thereat. Certainly, when Basilio
joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to which he
was exposing himself, yet, instead of remaining in his place, he went with Atty. Ojeda and
Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's house and thus he was
fatally shot.

We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman
of the Manila Auto Supply which was a block away from the house of Atty. Ojeda where something
suspicious was happening which caused the latter to ask for help. While at first he declied the
invitation of Atty. Ojeda to go with him to his residence to inquire into what was going on because he
was not a regular policeman, he later agreed to come along when prompted by the traffic policeman,
and upon approaching the gate of the residence he was shot and died. The circumstance that he
was a mere watchman and had no duty to heed the call of Atty. Ojeda should not be taken as a
capricious desire on his part to expose his life to danger considering the fact that the place he was in
duty-bound to guard was only a block away. In volunteering to extend help under the situation, he
might have thought, rightly or wrongly, that to know the truth was in the interest of his employer it
being a matter that affects the security of the neighborhood. No doubt there was some risk coming to
him in pursuing that errand, but that risk always existed it being inherent in the position he was
holding. He cannot therefore be blamed solely for doing what he believed was in keeping with his
duty as a watchman and as a citizen. And he cannot be considered as making an arrest as an officer
of the law, as contended, simply because he went with the traffic policeman, for certainly he did not
go there for that purpose nor was he asked to do so by the policeman.

Much less can it be pretended that Basilio died in the course of an assault or murder considering the
very nature of these crimes. In the first place, there is no proof that the death of Basilio is the result
of either crime for the record is barren of any circumstance showing how the fatal shot was fired.
Perhaps this may be clarified in the criminal case now pending in court as regards the incident but
before that is done anything that might be said on the point would be a mere conjecture. Nor can it
be said that the killing was intentional for there is the possibility that the malefactor had fired the shot
merely to scare away the people around for his own protection and not necessarily to kill or hit the
victim. In any event, while the act may not excempt the triggerman from liability for the damage
done, the fact remains that the happening was a pure accident on the part of the victim. The victim
could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor
aimed at the deceased precisely because he wanted to take his life.

We take note that these defenses are included among the risks exluded in the supplementary
contract which enumerates the cases which may exempt the company from liability. While as a
general rule "the parties may limit the coverage of the policy to certain particular accidents and risks
or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C. J. S.
781-782), however, it is to be desired that the terms and phraseology of the exception clause be
clearly expressed so as to be within the easy grasp and understanding of the insured, for if the terms
are doubtful or obscure the same must of necessity be interpreted or resolved aganst the one who
has caused the obscurity. (Article 1377, new Civil Code) And so it has bene generally held that the
"terms in an insurance policy, which are ambiguous, equivacal, or uncertain . . . are to be construed
strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved"
(29 Am. Jur., 181), and the reason for this rule is that he "insured usually has no voice in the
selection or arrangement of the words employed and that the language of the contract is selected
with great care and deliberation by experts and legal advisers employed by, and acting exclusively in
the interest of, the insurance company." (44 C. J. S., p. 1174.)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the bearings and possible complications of
every contingency. So long as insurance companies insist upon the use of ambiguous,
intricate and technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance, construe every
ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA
1917A, 1237.)lawphi1.net

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat
the very purpose for which the policy was procured. (Moore vs. Aetna Life Insurance Co.,
LRA 1915D, 264.)

We are therefore persuaded to conclude that the circumstances unfolded in the present case do not
warrant the finding that the death of the unfortunate victim comes within the purview of the exception
clause of the supplementary policy and, hence, do not exempt the company from liability.

Wherefore, reversing the decision appealed from, we hereby order the company to pay petitioner-
appellant the amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs.

Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and Reyes, J.
B. L., JJ., concur.

The Lawphil Project - Arellano Law Foundation

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-25579 March 29, 1972

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and
GRACIA T. BIAGTAN, plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.

Tanopo, Millora, Serafica, and Sañez for plaintiff-appellees.

Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D-1700.

The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife Assurance
Company under Policy No. 398075 for the sum of P5,000.00 and, under a supplementary contract
denominated "Accidental Death Benefit Clause, for an additional sum of P5,000.00 if "the death of
the Insured resulted directly from bodily injury effected solely through external and violent means
sustained in an accident ... and independently of all other causes." The clause, however,expressly
provided that it would not apply where death resulted from an injury"intentionally inflicted by another
party."

On the night of May 20, 1964, or during the first hours of the following day a band of robbers entered
the house of the insured Juan S. Biagtan. What happened then is related in the decision of the trial
court as follows:

...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said
life policy and supplementary contract were in full force and effect, the house of
insured Juan S. Biagtan was robbed by a band of robbers who were charged in and
convicted by the Court of First Instance of Pangasinan for robbery with homicide; that
in committing the robbery, the robbers, on reaching the staircase landing on the
second floor, rushed towards the door of the second floor room, where they suddenly
met a person near the door of oneof the rooms who turned out to be the insured
Juan S. Biagtan who received thrusts from their sharp-pointed instruments, causing
wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on
the same day, May 21, 1964;

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid
the basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the
accidental death benefit clause, on the ground that the insured's death resulted from injuries
intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed suit to recover,
and after due hearing the court a quo rendered judgment in their favor. Hence the present appeal by
the insurer.

The only issue here is whether under the facts are stipulated and found by the trial court the wounds
received by the insured at the hands of the robbers — nine in all, five of them mortal and four non-
mortal — were inflicted intentionally. The court, in ruling negatively on the issue, stated that since the
parties presented no evidence and submitted the case upon stipulation, there was no "proof that the
act of receiving thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict
injuries upon the person of the insured or any other person or merely to scare away any person so
as to ward off any resistance or obstacle that might be offered in the pursuit of their main objective
which was robbery."
The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine
wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments
wielded by the robbers. This is a physical fact as to which there is no dispute. So is the fact that five
of those wounds caused the death of the insured. Whether the robbers had the intent to kill or
merely to scare the victim or to ward off any defense he might offer, it cannot be denied that the act
itself of inflicting the injuries was intentional. It should be noted that the exception in the accidental
benefit clause invoked by the appellant does not speak of the purpose — whether homicidal or not
— of a third party in causing the injuries, but only of the fact that such injuries have been
"intentionally" inflicted — this obviously to distinguish them from injuries which, although received at
the hands of a third party, are purely accidental. This construction is the basic idea expressed in the
coverage of the clause itself, namely, that "the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident ... and
independently of all other causes." A gun which discharges while being cleaned and kills a
bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a competitive
game involving physical effort who collides with an opponent and fatally injures him as a result:
these are instances where the infliction of the injury is unintentional and therefore would be within
the coverage of an accidental death benefit clause such as thatin question in this case. But where a
gang of robbers enter a house and coming face to face with the owner, even if unexpectedly, stab
him repeatedly, it is contrary to all reason and logic to say that his injuries are not intentionally
inflicted, regardless of whether they prove fatal or not. As it was, in the present case they did prove
fatal, and the robbers have been accused and convicted of the crime of robbery with homicide.

The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support of
its decision. The facts in that case, however, are different from those obtaining here. The insured
there was a watchman in a certain company, who happened to be invited by a policeman to come
along as the latter was on his way to investigate a reported robbery going on in a private house. As
the two of them, together with the owner of the house, approached and stood in front of the main
gate, a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the
wound causing his death. Under those circumstances this Court held that it could not be said that
the killing was intentional for there was the possibility that the malefactor had fired the shot to scare
people around for his own protection and not necessarrily to kill or hit the victim. A similar possibility
is clearly ruled out by the facts in the case now before Us. For while a single shot fired from a
distance, and by a person who was not even seen aiming at the victim, could indeed have been fired
without intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot
conceivably be considered as innocent insofar as such intent is concerned. The manner of execution
of the crime permits no other conclusion.

Court decisions in the American jurisdiction, where similar provisions in accidental death benefit
clauses in insurance policies have been construed, may shed light on the issue before Us. Thus, it
has been held that "intentional" as used in an accident policy excepting intentional injuries inflicted
by the insured or any other person, etc., implies the exercise of the reasoning faculties,
consciousness and volition.1 Where a provision of the policy excludes intentional injury, it is the
intention of the person inflicting the injury that is controlling.2 If the injuries suffered by the insured
clearly resulted from the intentional act of a third person the insurer is relieved from liability as
stipulated.3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484,
the insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses were
interposed to the action to recover indemnity, namely: (1) that the insured having been killed by
intentional means, his death was not accidental, and (2) that the proviso in the policy expressly
exempted the insurer from liability in case the insured died from injuries intentionally inflicted by
another person. In rendering judgment for the insurance company the Court held that while the
assassination of the insured was as to him an unforeseen event and therefore accidental, "the
clause of the proviso that excludes the (insurer's) liability, in case death or injury is intentionally
inflicted by another person, applies to this case."

In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was
shot three times by a person unknown late on a dark and stormy night, while working in the coal
shed of a railroad company. The policy did not cover death resulting from "intentional injuries
inflicted by the insured or any other person." The inquiry was as to the question whether the shooting
that caused the insured's death was accidental or intentional; and the Court found that under the
facts, showing that the murderer knew his victim and that he fired with intent to kill, there could be no
recovery under the policy which excepted death from intentional injuries inflicted by any person.
WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without
pronouncement as to costs.

Zaldivar, Castro, Fernando and Villamor, JJ., concur.

Makasiar, J., reserves his vote.

Separate Opinions

BARREDO, J., concurring —

During the deliberations in this case, I entertained some doubts as to the correctness and validity of
the view upheld in the main opinion penned by Justice Makalintal. Further reflection has convinced
me, however, that there are good reasons to support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for the
purposes of an accident insurance policy or a life insurance policy with a double indemnity clause in
case death results from accident. Indeed, it is quite logical to think that any event whether caused by
fault, negligence, intent of a third party or any unavoidable circumstance, normally unforeseen by the
insured and free from any possible connivance on his part, is an accident in the generally accepted
sense of the term. And if I were convinced that in including in the policy the provision in question,
both the insurer and the insured had in mind to exclude thereby from the coverage of the policy only
suicide whether unhelped or helped somehow by a third party, I would disregard the American
decisions cited and quoted in the main opinion as not even persuasive authorities. But examining the
unequivocal language of the provision in controversy and considering that the insured accepted the
policy without asking that it be made clear that the phrase "injury intentionally inflicted by a third
party" should be understood to refer only to injuries inflicted by a third party without any wilful
intervention on his part (of the insured) or, in other words, without any connivance with him (the
insured) in order to augment the proceeds of the policy for his benificiaries, I am inclined to agree
that death caused by criminal assault is not covered by the policies of the kind here in question,
specially if the assault, as a matter of fact, could have been more or less anticipated, as when the
insured happens to have violent enemies or is found in circumstances that would make his life fair
game of third parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any
intentional act can be, hence this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging
defendant insurance company liable, under its supplementary contract denominated "Accidental
Death Benefit Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia
T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal interest) and ruling that
defendant company had failed to present any evidence to substantiate its defense that the insured's
death came within the stipulated exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident, within
ninety days after the date of sustaining such injury, and independently of all other
causes, this Company shall pay, in addition to the sum insured specified on the first
page of this Policy, a further sum equal to said sum insured payable at the same time
 and in the same manner as said sum insured, provided, that such death occurred
during the continuance of this Clause and of this Policy and before the sixtieth
birthday of the Insured."1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter,
thus:

EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either
directly or indirectly, from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the
body, drowning and internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident
thereto; (c) while travelling as a passenger or otherwise in any form of submarine
transportation, or while engaging in submarine operations; (d) in any violation of the
law by the Insured or assault provoked by the Insured; (e) that has been inflicted
intentionally by a third party, either with or without provocation on the part of the
Insured, and whether or not the attack or the defense by the third party was caused
by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a
pilot, officer or member of the crew of the aircraft or is giving or receiving any kind of
training or instruction or has any duties aboard the aircraft or requiring descent
therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right
and opportunity to examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the

additional premium therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term
insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium
Certificate is granted to the insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured
is reached.2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows:
"that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and
supplementary contract were in full force and effect, the house of insured Juan S. Biagtan was
robbed by a band of robbers who were charged in and convicted by the Court of First Instance of
Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the
staircase landing of the second floor, rushed towards the doors of the second floor room, where they
suddenly met a person near the door of one of the rooms who turned out to be the insured Juan S.
Biagtan who received thrust from their sharp-pointed instruments, causing wounds on the body of
said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May 21, 1964." 3
Defendant company, while admitting the above-recited circumstances under which the insured met
his death, disclaimed liability under its accidental death benefit clause under paragraph 5 of its
stipulated "Exceptions" on its theory that the insured's death resulted from injuries "intentionally
inflicted by a third party," i.e. the robbers who broke into the insured's house and inflicted fatal
injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance
companies such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of Canada
with which the deceased insured Juan S. Biagtan was also insured for much larger sums under
similar contracts with accidental death benefit provisions have promptly paid the benefits thereunder
to plaintiffs-beneficiaries; (2) the robbers who caused the insured's death were charged in and
convicted by the Court of First Instance of Pangasinan for the crime of robbery with homicide; and
(3) the injuries inflicted on the insured by the robbers consisted of five mortal and four non-mortal
wounds.4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the
wounds inflicted upon him by the malefactors on the early morning of May 21, 1964
by means of thrusts from sharp-pointed instruments delivered upon his person, and
there is likewise no question that the thrusts were made on the occasion of the
robbery. However, it is defendants' position that the killing of the insured was
intentionally done by the malefactors, who were charged with and convicted of the
crime of robbery with homicide by the Court of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who
submitted the case for resolution upon the stipulation of facts presented by them.
Thus, the court does not have before it proof that the act of receiving thrust(s) from
the sharp-pointed instrument of the robbers was intended to inflict injuries upon the
person of the insured or any other person or merely to scare away any person so as
to ward off any resistance or obstacle that might be offered in the pursuit of their
main objective which was robbery. It was held that where a provision of the policy
excludes intentional injury, it is the intention of the person inflicting the injury that is
controlling ... and to come within the exception, the act which causes the injury must
be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of
Appeals, et al., L-8151, promulgated December 16, 1965, where the Supreme Court
ruled that "the shot (which killed the insured) was merely to scare away the people
around for his own protection and not necessarily to kill or hit the victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took
out life insurance from the Philippine American Life Insurance Company in the
amount of P2,000.00 to which was attached a supplementary contract covering
death by accident. Calanoc died of gunshot wounds on the occasion of a robbery
committed in the house of a certain Atty. Ojeda in Manila. The insured's widow was
paid P2,000.00, the face value of the policy, but when she demanded payment of the
additional sum of P2,000.00 representing the value of the supplemental policy, the
company refused alleging, as main defense, that the deceased died because he was
murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were (as in this case)
expressly excluded in the contract and have the effect of exempting the company
from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the
Court of Appeals in its decision which findings of fact were adopted by the Supreme
Court, as follows:

"...that on the way to the Ojeda residence (which was then being
robbed by armed men), the policeman and Atty. Ojeda passed by
Basilio (the insured) and somehow or other invited the latter to come
along; that as the three approached the Ojeda residence and stood in
front of the main gate which was covered by galvanized iron, the
fence itself being partly concrete and partly adobe stone, a shot was
 fired; ... that it turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although
unexpected, was not caused by an accident, being a voluntary and intentional act on
the part of the one who robbed, or one of those who robbed, the house of Atty.
Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the
possibility that the malefactors had fired the shot merely to scare
away the people around for his own protection and not necessarily to
kill or hit the victim. In any event, while the act may not exempt the
triggerman from ability for the damage done, the fact remains that the
happening was a pure accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case
as to the real intention of the malefactors in making a thrust with their sharp-pointed
instrument on any person, the victim in particular, the case falls squarely within the
ruling in the Calanoc vs. Court of Appeals case.

It is the considered view of this Court that the insured died because of an
accident which happened on the occasion of the robbery being committed in his
house. His death was not sought (at least no evidence was presented to show it
was), and therefore was fortuitous. "Accident" was defined as that which happens by
chance or fortuitously, without intention or design, and which is unexpected, unusual
and unforeseen, or that which takes place without one's foresight or expectation —
an event that proceeds from an unknown cause, or is an unusual effect of a known
cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of
those included among the risks excluded in the supplementary contract. However,
there is no evidence here that the thrusts with sharp-pointed instrument (which led to
the death of the insured) was "intentional," (sic) so as to exempt the company from
liability. It could safely be assumed that it was purely accidental considering that the
principal motive of the culprits was robbery, the thrusts being merely intended to
scare away persons who might offer resistance or might obstruct them from pursuing
their main objective which was robbery.5

It is respectfully submitted that the lower court committed no error in law in holding defendant
insurance company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by
virtue of the following considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here.6 This Court, there
construing a similar clause, squarely ruled that fatal injuries inflicted upon an insured by a
malefactor(s) during the latter's commission of a crime are deemed accidental and within the
coverage of such accidental death benefit clauses and the burden of proving that the killing was
intentional so as to have it fall within the stipulated exception of having resulted from injuries
"intentionally inflicted by a third party" must be discharged by the insurance company. This Court
there clearly held that in such cases where the killing does not amount to murder, it must be held to
be a "pure accident" on the part of the victim, compensable with double-indemnity, even though the
malefactor is criminally liable for his act. This Court rejected the insurance-company's contrary claim,
thus:

Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes. In the first place, there is no proof that
the death of Basilio is the result of either crime for the record is barren of any
circumstance showing how the fatal shot was fired. Perhaps this may be clarified in
the criminal case now pending in court a regards the incident but before that is done
anything that might be said on the point would be a mere conjecture. Nor can it be
said that the killing was intentional for there is the possibility that the malefactor had
fired the shot merely to scare away the people around for his own protection and not
 necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from liability for the damage done, the fact remains that the happening
was a pure accident on the part of the victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the
deceased precisely because he wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were inflicted upon the deceased intentionally,
i.e. deliberately. The lower court correctly held that since the case was submitted upon the parties' stipulation of facts which did not cover the
malefactors' intent at all, there was an "utter absence of evidence in this case as to the real intention of the malefactors in making a thrust
with their sharp-pointed instrument(s) on any person, the victim in particular." From the undisputed facts, supra,8 the robbers had "rushed
towards the doors of the second floor room, where they suddenly met a person ... who turned out to be the insured Juan S. Biagtan who
received thrusts from their pointed instruments." The thrusts were indeed properly termed "purely accidental" since they seemed to be a
reflex action on the robbers' part upon their being surprised by the deceased. To argue, as defendant does, that the robbers' intent to kill
must necessarily be deduced from the four mortal wounds inflicted upon the deceased is to beg the question. Defendant must suffer the
consequences of its failure to discharge its burden of proving by competent evidence, e.g. the robbers' or eyewitnesses' testimony, that the
fatal injuries were intentionally inflicted upon the insured so as to exempt itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by
defendant company, to wit, that the fatal injuries were not accidental as held by the lower court but
should be held to have been intentionally inflicted, raises a question of fact — which defendant is
now barred from raising, since it expressly limited its appeal to this Court purely "on questions of
law", per its noitice of appeal,9 Defendant is therefore confined to "raising only questions of law" and
"no other questions" under Rule 42, section 2 of the Rules of Court 10 and is deemed to have
conceded the findings of fact of the trial court, since he thereby waived all questions of facts. 11

4. It has long been an established rule of construction of so-called contracts of adhesion such as
insurance contracts, where the insured is handed a printed insurance policy whose fine-print
language has long been selected with great care and deliberation by specialists and legal advisers
employed by and acting exclusively in the interest of the insurance company, that the terms and
phraseology of the policy, particularly of any exception clauses, must be clearly expressed so as to
be easily understood by the insured and any "ambiguous, equivocal or uncertain terms" are to be
"construed strictly and most strongly against the insurer and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is
involved.

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain
particular accidents and risks or causes of loss, and may expressly except other risks
or causes of loss therefrom" (45 C.J.S. 781-782), however, it is to be desired that the
terms and phraseology of the exception clause be clearly expressed so as to be
within the easy grasp and understanding of the insured, for if the terms are doubtful
or obscure the same must of necessity be interpreted or resolved against the one
who has caused the obscurity. (Article 1377, new Civil Code) And so it has been
generally held that the "terms in an insurance policy, which are ambiguous,
equivocal, or uncertain ... are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where a forfeiture is involved" (29
AM. Jur., 181), and the reason for this rule is that the "insured usually has no voice in
the selection or arrangement of the words employed and that the language of the
contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company." (44
C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can anticipate the
bearing and possible complications of every contingency. So long as insurance
companies insist upon the use of ambiguous, intricate and technical provisions,
which conceal rather than frankly disclose, their own intentions, the courts must, in
fairness to those who purchase insurance construe every ambiguity in favor of the
insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324 LRA 1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to
defeat the very purpose for which the policy was procured." (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 164). 12
The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the
provisions of Article 1377 of our Civil Code that "The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double indemnity, upon
payment of an extra premium, in the event that the insured meets violent accidental death is
contractually stipulated as follows in the policy: "that the death of the insured resulted directly from
bodily injury effected solely through external and violent means sustained in an accident," supra. The
policy then lists numerous exceptions, which may be classified as follows:

— Injuries effected through non-external means which are excepted: self-destruction, bodily or
mental infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior
wounds (exceptions 1 to 4 of policy clause);

— Injuries caused by some act of the insured which is proscribed by the policy, and are therefore
similarly exepted: injuries received while on police duty, while travelling in any form of submarine
transportation, or in any violation of law by the insured or assault provoked by the insured, or in any
aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy
clause]; and

— Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or
war or atomic energy explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e), the
very exception herein involved, which would also except injuries "inflicted intentionally by a third
party, either with or without provocation on the part of the insured, and whether or not the attack or
the defense by the third party was caused by a violation of the law by the insured."

This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5
particularly that immediately preceding it in item (d) which excepts injuries received where the
insured has violated the law or provoked the injury, while this clause, construed as the insurance
company now claims, would seemingly except also all other injuries, intentionally inflicted by a third
party, regardless of any violation of law or provocation by the insured, and defeat the very purpose
of the policy of giving the insured double indemnity in case of accidental death by "external and
violent means" — in the very language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a
sociis that the double-indemnity policy covers the insured against accidental death, whether caused
by fault, negligence or intent of a third party which is unforeseen and unexpected by the insured. All
the associated words and concepts in the policy plainly exclude the accidental death from the
coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act of
the insured or are incurred in some expressly excluded calamity such as riot, war or atomic
explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the
exception is further heightened by the stipulated fact that two other insurance companies which
likewise covered the insured for which larger sums under similar accidental death benefit clauses
promptly paid the benefits thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendant-
appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

Separate Opinions

BARREDO, J., concurring —

During the deliberations in this case, I entertained some doubts as to the correctness and validity of
the view upheld in the main opinion penned by Justice Makalintal. Further reflection has convinced
me, however, that there are good reasons to support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for the
purposes of an accident insurance policy or a life insurance policy with a double indemnity clause in
case death results from accident. Indeed, it is quite logical to think that any event whether caused by
fault, negligence, intent of a third party or any unavoidable circumstance, normally unforeseen by the
insured and free from any possible connivance on his part, is an accident in the generally accepted
sense of the term. And if I were convinced that in including in the policy the provision in question,
both the insurer and the insured had in mind to exclude thereby from the coverage of the policy only
suicide whether unhelped or helped somehow by a third party, I would disregard the American
decisions cited and quoted in the main opinion as not even persuasive authorities. But examining the
unequivocal language of the provision in controversy and considering that the insured accepted the
policy without asking that it be made clear that the phrase "injury intentionally inflicted by a third
party" should be understood to refer only to injuries inflicted by a third party without any wilful
intervention on his part (of the insured) or, in other words, without any connivance with him (the
insured) in order to augment the proceeds of the policy for his benificiaries, I am inclined to agree
that death caused by criminal assault is not covered by the policies of the kind here in question,
specially if the assault, as a matter of fact, could have been more or less anticipated, as when the
insured happens to have violent enemies or is found in circumstances that would make his life fair
game of third parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any
intentional act can be, hence this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging
defendant insurance company liable, under its supplementary contract denominated "Accidental
Death Benefit Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia
T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal interest) and ruling that
defendant company had failed to present any evidence to substantiate its defense that the insured's
death came within the stipulated exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident, within
ninety days after the date of sustaining such injury, and independently of all other
causes, this Company shall pay, in addition to the sum insured specified on the first
page of this Policy, a further sum equal to said sum insured payable at the same time
and in the same manner as said sum insured, provided, that such death occurred
during the continuance of this Clause and of this Policy and before the sixtieth
birthday of the Insured."1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter,
thus:

EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either
directly or indirectly, from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the
body, drowning and internal injuries revealed by autopsy excepted;
 (5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident
thereto; (c) while travelling as a passenger or otherwise in any form of submarine
transportation, or while engaging in submarine operations; (d) in any violation of the
law by the Insured or assault provoked by the Insured; (e) that has been inflicted
intentionally by a third party, either with or without provocation on the part of the
Insured, and whether or not the attack or the defense by the third party was caused
by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a
pilot, officer or member of the crew of the aircraft or is giving or receiving any kind of
training or instruction or has any duties aboard the aircraft or requiring descent
therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right
and opportunity to examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the

additional premium therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term
insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium
Certificate is granted to the insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured
is reached.2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows:
"that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and
supplementary contract were in full force and effect, the house of insured Juan S. Biagtan was
robbed by a band of robbers who were charged in and convicted by the Court of First Instance of
Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the
staircase landing of the second floor, rushed towards the doors of the second floor room, where they
suddenly met a person near the door of one of the rooms who turned out to be the insured Juan S.
Biagtan who received thrust from their sharp-pointed instruments, causing wounds on the body of
said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May 21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured met
his death, disclaimed liability under its accidental death benefit clause under paragraph 5 of its
stipulated "Exceptions" on its theory that the insured's death resulted from injuries "intentionally
inflicted by a third party," i.e. the robbers who broke into the insured's house and inflicted fatal
injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance
companies such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of Canada
with which the deceased insured Juan S. Biagtan was also insured for much larger sums under
similar contracts with accidental death benefit provisions have promptly paid the benefits thereunder
to plaintiffs-beneficiaries; (2) the robbers who caused the insured's death were charged in and
convicted by the Court of First Instance of Pangasinan for the crime of robbery with homicide; and
(3) the injuries inflicted on the insured by the robbers consisted of five mortal and four non-mortal
wounds.4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the
wounds inflicted upon him by the malefactors on the early morning of May 21, 1964
by means of thrusts from sharp-pointed instruments delivered upon his person, and
there is likewise no question that the thrusts were made on the occasion of the
robbery. However, it is defendants' position that the killing of the insured was
intentionally done by the malefactors, who were charged with and convicted of the
crime of robbery with homicide by the Court of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who
submitted the case for resolution upon the stipulation of facts presented by them.
Thus, the court does not have before it proof that the act of receiving thrust(s) from
the sharp-pointed instrument of the robbers was intended to inflict injuries upon the
person of the insured or any other person or merely to scare away any person so as
to ward off any resistance or obstacle that might be offered in the pursuit of their
main objective which was robbery. It was held that where a provision of the policy
excludes intentional injury, it is the intention of the person inflicting the injury that is
controlling ... and to come within the exception, the act which causes the injury must
be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of
Appeals, et al., L-8151, promulgated December 16, 1965, where the Supreme Court
ruled that "the shot (which killed the insured) was merely to scare away the people
around for his own protection and not necessarily to kill or hit the victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took
out life insurance from the Philippine American Life Insurance Company in the
amount of P2,000.00 to which was attached a supplementary contract covering
death by accident. Calanoc died of gunshot wounds on the occasion of a robbery
committed in the house of a certain Atty. Ojeda in Manila. The insured's widow was
paid P2,000.00, the face value of the policy, but when she demanded payment of the
additional sum of P2,000.00 representing the value of the supplemental policy, the
company refused alleging, as main defense, that the deceased died because he was
murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were (as in this case)
expressly excluded in the contract and have the effect of exempting the company
from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the
Court of Appeals in its decision which findings of fact were adopted by the Supreme
Court, as follows:

"...that on the way to the Ojeda residence (which was then being
robbed by armed men), the policeman and Atty. Ojeda passed by
Basilio (the insured) and somehow or other invited the latter to come
along; that as the three approached the Ojeda residence and stood in
front of the main gate which was covered by galvanized iron, the
fence itself being partly concrete and partly adobe stone, a shot was
fired; ... that it turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although
unexpected, was not caused by an accident, being a voluntary and intentional act on
the part of the one who robbed, or one of those who robbed, the house of Atty.
Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the
possibility that the malefactors had fired the shot merely to scare
away the people around for his own protection and not necessarily to
kill or hit the victim. In any event, while the act may not exempt the
triggerman from ability for the damage done, the fact remains that the
happening was a pure accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case
as to the real intention of the malefactors in making a thrust with their sharp-pointed
 instrument on any person, the victim in particular, the case falls squarely within the
ruling in the Calanoc vs. Court of Appeals case.

It is the considered view of this Court that the insured died because of an
accident which happened on the occasion of the robbery being committed in his
house. His death was not sought (at least no evidence was presented to show it
was), and therefore was fortuitous. "Accident" was defined as that which happens by
chance or fortuitously, without intention or design, and which is unexpected, unusual
and unforeseen, or that which takes place without one's foresight or expectation —
an event that proceeds from an unknown cause, or is an unusual effect of a known
cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of
those included among the risks excluded in the supplementary contract. However,
there is no evidence here that the thrusts with sharp-pointed instrument (which led to
the death of the insured) was "intentional," (sic) so as to exempt the company from
liability. It could safely be assumed that it was purely accidental considering that the
principal motive of the culprits was robbery, the thrusts being merely intended to
scare away persons who might offer resistance or might obstruct them from pursuing
their main objective which was robbery.5

It is respectfully submitted that the lower court committed no error in law in holding defendant
insurance company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by
virtue of the following considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here.6 This Court, there
construing a similar clause, squarely ruled that fatal injuries inflicted upon an insured by a
malefactor(s) during the latter's commission of a crime are deemed accidental and within the
coverage of such accidental death benefit clauses and the burden of proving that the killing was
intentional so as to have it fall within the stipulated exception of having resulted from injuries
"intentionally inflicted by a third party" must be discharged by the insurance company. This Court
there clearly held that in such cases where the killing does not amount to murder, it must be held to
be a "pure accident" on the part of the victim, compensable with double-indemnity, even though the
malefactor is criminally liable for his act. This Court rejected the insurance-company's contrary claim,
thus:

Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes. In the first place, there is no proof that
the death of Basilio is the result of either crime for the record is barren of any
circumstance showing how the fatal shot was fired. Perhaps this may be clarified in
the criminal case now pending in court a regards the incident but before that is done
anything that might be said on the point would be a mere conjecture. Nor can it be
said that the killing was intentional for there is the possibility that the malefactor had
fired the shot merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from liability for the damage done, the fact remains that the happening
was a pure accident on the part of the victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the
deceased precisely because he wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were
inflicted upon the deceased intentionally, i.e. deliberately. The lower court correctly held that since
the case was submitted upon the parties' stipulation of facts which did not cover the malefactors'
intent at all, there was an "utter absence of evidence in this case as to the real intention of the
malefactors in making a thrust with their sharp-pointed instrument(s) on any person, the victim in
particular." From the undisputed facts, supra,8 the robbers had "rushed towards the doors of the
second floor room, where they suddenly met a person ... who turned out to be the insured Juan S.
Biagtan who received thrusts from their pointed instruments." The thrusts were indeed properly
termed "purely accidental" since they seemed to be a reflex action on the robbers' part upon their
being surprised by the deceased. To argue, as defendant does, that the robbers' intent to kill must
necessarily be deduced from the four mortal wounds inflicted upon the deceased is to beg the
question. Defendant must suffer the consequences of its failure to discharge its burden of proving by
competent evidence, e.g. the robbers' or eyewitnesses' testimony, that the fatal injuries
were intentionally inflicted upon the insured so as to exempt itself from liability.
3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by
defendant company, to wit, that the fatal injuries were not accidental as held by the lower court but
should be held to have been intentionally inflicted, raises a question of fact — which defendant is
now barred from raising, since it expressly limited its appeal to this Court purely "on questions of
law", per its noitice of appeal,9 Defendant is therefore confined to "raising only questions of law" and
"no other questions" under Rule 42, section 2 of the Rules of Court 10 and is deemed to have
conceded the findings of fact of the trial court, since he thereby waived all questions of facts. 11

4. It has long been an established rule of construction of so-called contracts of adhesion such as
insurance contracts, where the insured is handed a printed insurance policy whose fine-print
language has long been selected with great care and deliberation by specialists and legal advisers
employed by and acting exclusively in the interest of the insurance company, that the terms and
phraseology of the policy, particularly of any exception clauses, must be clearly expressed so as to
be easily understood by the insured and any "ambiguous, equivocal or uncertain terms" are to be
"construed strictly and most strongly against the insurer and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is
involved.

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain
particular accidents and risks or causes of loss, and may expressly except other risks
or causes of loss therefrom" (45 C.J.S. 781-782), however, it is to be desired that the
terms and phraseology of the exception clause be clearly expressed so as to be
within the easy grasp and understanding of the insured, for if the terms are doubtful
or obscure the same must of necessity be interpreted or resolved against the one
who has caused the obscurity. (Article 1377, new Civil Code) And so it has been
generally held that the "terms in an insurance policy, which are ambiguous,
equivocal, or uncertain ... are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where a forfeiture is involved" (29
AM. Jur., 181), and the reason for this rule is that the "insured usually has no voice in
the selection or arrangement of the words employed and that the language of the
contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company." (44
C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can anticipate the
bearing and possible complications of every contingency. So long as insurance
companies insist upon the use of ambiguous, intricate and technical provisions,
which conceal rather than frankly disclose, their own intentions, the courts must, in
fairness to those who purchase insurance construe every ambiguity in favor of the
insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324 LRA 1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to
defeat the very purpose for which the policy was procured." (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the
provisions of Article 1377 of our Civil Code that "The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double indemnity, upon
payment of an extra premium, in the event that the insured meets violent accidental death is
contractually stipulated as follows in the policy: "that the death of the insured resulted directly from
bodily injury effected solely through external and violent means sustained in an accident," supra. The
policy then lists numerous exceptions, which may be classified as follows:

— Injuries effected through non-external means which are excepted: self-destruction, bodily or
mental infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior
wounds (exceptions 1 to 4 of policy clause);
— Injuries caused by some act of the insured which is proscribed by the policy, and are therefore
similarly exepted: injuries received while on police duty, while travelling in any form of submarine
transportation, or in any violation of law by the insured or assault provoked by the insured, or in any
aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy
clause]; and

— Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or
war or atomic energy explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e), the
very exception herein involved, which would also except injuries "inflicted intentionally by a third
party, either with or without provocation on the part of the insured, and whether or not the attack or
the defense by the third party was caused by a violation of the law by the insured."

This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5
particularly that immediately preceding it in item (d) which excepts injuries received where the
insured has violated the law or provoked the injury, while this clause, construed as the insurance
company now claims, would seemingly except also all other injuries, intentionally inflicted by a third
party, regardless of any violation of law or provocation by the insured, and defeat the very purpose
of the policy of giving the insured double indemnity in case of accidental death by "external and
violent means" — in the very language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a
sociis that the double-indemnity policy covers the insured against accidental death, whether caused
by fault, negligence or intent of a third party which is unforeseen and unexpected by the insured. All
the associated words and concepts in the policy plainly exclude the accidental death from the
coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act of
the insured or are incurred in some expressly excluded calamity such as riot, war or atomic
explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the
exception is further heightened by the stipulated fact that two other insurance companies which
likewise covered the insured for which larger sums under similar accidental death benefit clauses
promptly paid the benefits thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendant-
appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 100970 September 2, 1992

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.

Aquino and Associates for petitioner.

Public Attorney's Office for private respondent.

NOCON, J.:

This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary
mandatory injunction to annul and set aside the decision of the Court of Appeals dated July 11,
1991, 1 affirming the decision dated March 20, 1990 of the Insurance Commission 2 in ordering
petitioner Finman General Assurance Corporation to pay private respondent Julia Surposa the
proceeds of the personal accident Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner
Finman General Assurance Corporation under Finman General Teachers Protection Plan Master
Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa,
and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October
18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified men without
provocation and warning on the part of the former as he and his cousin, Winston Surposa, were
waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after attending the
celebration of the "Maskarra Annual Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written
notice of claim with the petitioner insurance company which denied said claim contending that
murder and assault are not within the scope of the coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which
subsequently rendered a decision, the pertinent portion of which reads:

In the light of the foregoing. we find respondent liable to pay complainant the sum of
P15,000.00 representing the proceeds of the policy with interest. As no evidence was
submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same
cannot be entertained.

WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant

the sum of P15,000.00 with legal interest from the date of the filing of the complaint
until fully satisfied. With costs. 4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate
court in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance
policy since death resulting from murder and/or assault are impliedly excluded in said insurance
policy considering that the cause of death of the insured was not accidental but rather a deliberate
and intentional act of the assailant in killing the former as indicated by the location of the lone stab
wound on the insured. Therefore, said death was committed with deliberate intent which, by the very
nature of a personal accident insurance policy, cannot be indemnified.

We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected.

. . . The generally accepted rule is that, death or injury does not result from accident
or accidental means within the terms of an accident-policy if it is the natural result of
the insured's voluntary act, unaccompanied by anything unforeseen except the death
or injury. There is no accident when a deliberate act is performed unless some
additional, unexpected, independent, and unforeseen happening occurs which
produces or brings about the result of injury or death. In other words, where the
death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of the policies insuring against death or injury
from accident. 5

As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of
an assault or murder as a result of his voluntary act considering the very nature of
these crimes. In the first place, the insured and his companion were on their way
home from attending a festival. They were confronted by unidentified persons. The
record is barren of any circumstance showing how the stab wound was inflicted. Nor
can it be pretended that the malefactor aimed at the insured precisely because the
killer wanted to take his life. In any event, while the act may not exempt the unknown
perpetrator from criminal liability, the fact remains that the happening was a pure
accident on the part of the victim. The insured died from an event that took place
without his foresight or expectation, an event that proceeded from an unusual effect
of a known cause and, therefore, not expected. Neither can it be said that where was
a capricious desire on the part of the accused to expose his life to danger
considering that he was just going home after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten
(10) circumstances wherein no liability attaches to petitioner insurance company for any injury,
disability or loss suffered by the insured as a result of any of the stimulated causes. The principle of
" expresso unius exclusio alterius" — the mention of one thing implies the exclusion of another thing
— is therefore applicable in the instant case since murder and assault, not having been expressly
included in the enumeration of the circumstances that would negate liability in said insurance policy
cannot be considered by implication to discharge the petitioner insurance company from liability for,
any injury, disability or loss suffered by the insured. Thus, the failure of the petitioner insurance
company to include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of the
insured and strictly against the insurer. Thus ambiguity in the words of an insurance
contract should be interpreted in favor of its beneficiary. 7
WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the
petition for certiorari with restraining order and preliminary injunction is hereby DENIED for lack of
merit.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Melo, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 85296 May 14, 1990

ZENITH INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.

Vicente R. Layawen for petitioner.

Lawrence L. Fernandez & Associates for private respondent.

MEDIALDEA, J.:

Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee
v. Zenith Insurance Corp., defendant-appellant" which affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil
Case No. CEB-1215 and the denial of petitioner's Motion for Reconsideration.

The antecedent facts are as follows:

On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage"
under private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, the
car figured in an accident and suffered actual damages in the amount of P3,640.00. After allegedly
being given a run around by Zenith for two (2) months, Fernandez filed a complaint with the
Regional Trial Court of Cebu for sum of money and damages resulting from the refusal of Zenith to
pay the amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside from
actual damages and interests, Fernandez also prayed for moral damages in the amount of
P10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expenses
of P3,000.00.

On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private respondent rejected. After the
issues had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved
to November 4, 1983 upon petitioner's motion, allegedly to explore ways to settle the case although
at an amount lower than private respondent's claim. On November 14, 1983, the trial court
terminated the pre-trial. Subsequently, Fernandez presented his evidence. Petitioner Zenith,
however, failed to present its evidence in view of its failure to appear in court, without justifiable
reason, on the day scheduled for the purpose. The trial court issued an order on August 23, 1984
submitting the case for decision without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a
petition for certiorari with the Court of Appeals assailing the order of the trial court submitting the
case for decision without petitioner's evidence. The petition was docketed as C.A.-G.R. No. 04644.
However, the petition was denied due course on April 29, 1986 (p. 56, Rollo).

On June 4, 1986, a decision was rendered by the trial court in favor of private respondent
Fernandez. The dispositive portion of the trial court's decision provides:

WHEREFORE, defendant is hereby ordered to pay to the plaintiff:

1. The amount of P3,640.00 representing the damage incurred plus interest at the
rate of twice the prevailing interest rates;

2. The amount of P20,000.00 by way of moral damages;

3. The amount of P20,000.00 by way of exemplary damages;

 4. The amount of P5,000.00 as attorney's fees;

5. The amount of P3,000.00 as litigation expenses; and

6. Costs. (p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June
20, 1986, ordered the execution of the decision pending appeal. The order was assailed by
petitioner in a petition for certiorariwith the Court of Appeals on October 23, 1986 in C.A. G.R. No.
10420 but which petition was also dismissed on December 24, 1986 (p. 69, Rollo).

On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal was
granted in the same order granting private respondent's motion for execution pending appeal. The
appeal to respondent court assigned the following errors:

I. The lower court erred in denying defendant appellant to adduce evidence in its
behalf.

II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount
of P3,640.00 in its decision.

III. The lower court erred in awarding moral damages, attorneys fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed
for in the complaint. (p. 12, Rollo)

On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of the
trial court. It also ruled that the matter of the trial court's denial of Fernandez's right to adduce
evidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition
questioning the trial court's order submitting the case for decision without Zenith's evidence, was
dismissed.

The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 was
denied on September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith on
October 18, 1988 on the allegation that respondent Court of Appeals' decision and resolution ran
counter to applicable decisions of this Court and that they were rendered without or in excess of
jurisdiction. The issues raised by petitioners in this petition are:

a) The legal basis of respondent Court of Appeals in awarding moral damages,

exemplary damages and attomey's fees in an amount more than that prayed for in
the complaint.

b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was
arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.

Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moral
damages, the lower court awarded twice the amount, or P20,000.00 without factual or legal basis;
while private respondent prayed for P5,000.00 exemplary damages, the trial court awarded
P20,000.00; and while private respondent prayed for P3,000.00 attorney's fees, the trial court
awarded P5,000.00.

The propriety of the award of moral damages, exemplary damages and attorney's fees is the main
issue raised herein by petitioner.

The award of damages in case of unreasonable delay in the payment of insurance claims is
governed by the Philippine Insurance Code, which provides:

Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attomey's fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
 withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as
the case may be, until the claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima
facie evidence of unreasonable delay in payment.

It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the
proceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other
expenses incurred by the insured person by reason of such unreasonable denial or withholding of
payment; 3) interest at twice the ceiling prescribed by the Monetary Board of the amount of the claim
due the injured; and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of the
Philippines shall govern.

"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction.
Moral damages are emphatically not intended to enrich a complainant at the expense of a
defendant, they are awarded only to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he has undergone by reason of the
defendant's culpable action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages, Revised
Edition, p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22,
1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary in order that moral
damages may be adjudicated, the assessment of which is left to the discretion of the court according
to the circumstances of each case (Art. 2216, New Civil Code), it is equally true that in awarding
moral damages in case of breach of contract, there must be a showing that the breach was wanton
and deliberately injurious or the one responsible acted fraudently or in bad faith (Perez v. Court of
Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022,
August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that private respondent was
given a "run-around" for two months, which is the basis for the award of the damages granted under
the Insurance Code for unreasonable delay in the payment of the claim. However, the act of
petitioner of delaying payment for two months cannot be considered as so wanton or malevolent to
justify an award of P20,000.00 as moral damages, taking into consideration also the fact that the
actual damage on the car was only P3,460. In the pre-trial of the case, it was shown that there was
no total disclaimer by respondent. The reason for petitioner's failure to indemnify private respondent
within the two-month period was that the parties could not come to an agreement as regards the
amount of the actual damage on the car. The amount of P10,000.00 prayed for by private
respondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed by way of example or correction
for the public good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-
Arnaldo, G.R. No. 57322, June 22,1987; 151 SCRA 227, exemplary damages were not awarded as
the insurance company had not acted in wanton, oppressive or malevolent manner. The same is
true in the case at bar.

The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of this
case considering that there were other petitions filed and defended by private respondent in
connection with this case.

As regards the actual damages incurred by private respondent, the amount of P3,640.00 had been
established before the trial court and affirmed by the appellate court. Respondent appellate court
correctly ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts, respectively claimed by petitioners as agreed upon in the contract, had no
basis. Respondent court ruled:

Under its second assigned error, defendant-appellant puts forward two arguments,
both of which are entirely without merit. It is contented that the amount recoverable
under the insurance policy defendant-appellant issued over the car of plaintiff-
appellee is subject to deductible franchise, and . . . .

The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise, . . .
(p. 13, Rollo)
Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary
damages is hereby deleted. The awards due to private respondent Fernandez are as follows:

1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the
Monetary Board computed from the time of submission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

4) P3,000.00 as litigation expenses; and

5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SO ORDERED.

Narvasa, Cruz and Griño-Aquino, JJ., concur.

Gancayco, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his
wife Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that
there was no suicide. It argued, however that there was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6,
1982, at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim
was in a happy mood (but not drunk) and was playing with his handgun, from which he had
previously removed the magazine. As she watched television, he stood in front of her and pointed
the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He
was dead before he fell. 1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was
sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the
policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary
damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus
the costs of the suit. This decision was affirmed on appeal, and the motion for reconsideration was
denied. 3 The petitioner then came to this Court to fault the Court of Appeals for approving the
payment of the claim and the award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In-substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by chance or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an unknown cause, or is an
unusual effect of a known case, and therefore not expected. 4

An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence
or casualty to the injured without his design, consent, or voluntary co-operation. 5

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or death."
There was such a happening. This was the firing of the gun, which was the additional unexpected
and independent and unforeseen occurrence that led to the insured person's death.
The petitioner also cites one of the four exceptions provided for in the insurance contract and
contends that the private petitioner's claim is barred by such provision. It is there stated:

Exceptions —

The company shall not be liable in respect of

1. Bodily injury

xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicide or willfully exposing himself to

needless peril except in an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends
that the insured willfully exposed himself to needless peril and thus removed himself from the
coverage of the insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless risking
of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand
meters above the ground and without any safety device may not actually be intending to commit
suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing
himself to needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is per
se dangerous and should therefore be handled cautiously in every case.

That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressly assured her that the
gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act
was precisely intended to assure Nalagon that the gun was indeed harmless.

The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his
tendency to show off or for his miscalculations. They were intended to provide for
contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into the
Pasig River in the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I drown I cannot go to
the insurance company to ask them to compensate me for my failure to swim as well
as I thought I could. The insured in the case at bar deliberately put the gun to his
head and pulled the trigger. He wilfully exposed himself to peril.

The Court certainly agrees that a drowned man cannot go to the insurance company to ask for
compensation. That might frighten the insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is
clear that when he braved the currents below, he deliberately exposed himself to a known peril.

The private respondent maintains that Lim did not. That is where she says the analogy fails. The
petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below
were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not
prevent his widow from recovering from the insurance policy he obtained precisely against accident.
There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity
agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents
are caused by negligence. There are only four exceptions expressly made in the contract to relieve
the insurer from liability, and none of these exceptions is applicable in the case at bar. **

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of
the assured. There is no reason to deviate from this rule, especially in view of the circumstances of
this case as above analyzed.

On the second assigned error, however, the Court must rule in favor of the petitioner. The basic
issue raised in this case is, as the petitioner correctly observed, one of first impression. It is evident
that the petitioner was acting in good faith then it resisted the private respondent's claim on the
ground that the death of the insured was covered by the exception. The issue was indeed debatable
and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore
that the award of moral and exemplary damages and of attorney's fees is unjust and so must be
disapproved.

In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per
se make the act wrongful and subject the act or to the payment of moral damages.
The law could not have meant to impose a penalty on the right to litigate; such right
is so precious that moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his
act in bringing the action wrongful because in most cases one party will lose; we
would be imposing an unjust condition or limitation on the right to litigate. We hold
that the award of moral damages in the case at bar is not justified by the facts had
circumstances as well as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses,
since it is not the fact of winning alone that entitles him to recover such damages of
the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a
defendant wins, automatically the plaintiff must pay attorney's fees thereby putting a
premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the petitioner liable to the private
respondent in the sum of P200,000.00 representing the face value of the insurance contract, with interest at the legal rate from the date of
the filing of the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for damages, including attorney's fees,
except the costs of the suit.

SO ORDERED.

Griño-Aquino, Medialdea and Bellosillo, JJ., concur.

Footnotes

1 TSN, October 1, 1985, pp. 25-30.

2 Decided by Judge Omar J. Amen.

3 Penned by Justice Nicolas P. Lapeña, Jr., with Campos. Jr. and

Cui, JJ., concurring.

4 43 Am. Jur. 2d 627.

5 Ibid., p. 628.

6 17 SCRA 559.

** Exceptions

The Company shall not be liable in respect of

1. bodily injury

a) sustained

i) while the Insured Person is engaging in (or practicing for or taking part in training
peculiar to) any of the Excluded Activities.

ii) by any person before such person attains the Lower Age Limit or after the expiry of
the Period of Insurance during which such person attains the Upper Age Limit.

b) consequent upon

i) the Insured Person committing or attempting to commit suicide or wilfully exposing

himself to needless peril except in an attempt to save human life.

ii) war, invasion, act of foreign enemy, hostilities (whether war be declared or not)
civil war, rebellion, revolution, insurrection, or military or usurped power.

2. bodily injury or Death Disablement or Medical Expenses consequent upon or

contributed to by the Insured Person

a) having taken a drug unless the Insured proves that the drug was taken in
accordance with proper medical prescription and directions and not for treatment of
drug addiction.

b) suffering from pre-existing physical or mental defect or infirmity which had not
been declared to and accepted in writing by the Company.

3. Death Disablement or Medical Expenses consequent upon or contributed to by the

Insured Person being pregnant or suffering from sickness or disease not resulting
from bodily injury or suffering from bodily injury due to a gradually operating cause.

4. Risks of Murder and Assault.

7 Barreto vs. Arevalo, 99 Phil. 771.

8 Rizal Surety vs. Court of Appeals, 20 SCRA 61.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-54171 October 28, 1980

JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,

vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.

TEEHANKEE, Acting C.J.:

The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint and
holds that where the insured's car is wrongfully taken without the insured's consent from the car
service and repair shop to whom it had been entrusted for check-up and repairs (assuming that such
taking was for a joy ride, in the course of which it was totally smashed in an accident), respondent
insurer is liable and must pay insured for the total loss of the insured vehicle under the theft clause
of the policy.

The undisputed facts of the case as found in the appealed decision of April 14, 1980 of respondent
insurance commission are as follows:

Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00 —
Own Damage; P30,000.00 — Theft; and P30,000.00 — Third Party Liability, effective
May 16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the
Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978,
while it was in the custody of the Sunday Machine Works, the car was allegedly
taken by six (6) persons and driven out to Montalban, Rizal. While travelling along
Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car
figured in an accident, hitting and bumping a gravel and sand truck parked at the
right side of the road going south. As a consequence, the gravel and sand truck
veered to the right side of the pavement going south and the car veered to the right
side of the pavement going north. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as well,
suffered extensive damage. Complainant, thereafter, filed a claim for total loss with
the respondent company but claim was denied. Hence, complainant, was compelled
to institute the present action.

The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire
Insurance Company admittedly undertook to indemnify the petitioner-insured against loss or damage
to the car (a) by accidental collision or overturning, or collision or overturning consequent upon
mechanical breakdown or consequent upon wear and tear; (b) by fire, external explosion, self-
ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act.

Respondent insurance commission, however, dismissed petitioner's complaint for recovery of the
total loss of the vehicle against private respondent, sustaining respondent insurer's contention that
the accident did not fall within the provisions of the policy either for the Own Damage or Theft
coverage, invoking the policy provision on "Authorized Driver" clause.1

Respondent commission upheld private respondent's contention on the "Authorized Driver" clause in
this wise: "It must be observed that under the above-quoted provisions, the policy limits the use of
the insured vehicle to two (2) persons only, namely: the insured himself or any person on his
(insured's) permission. Under the second category, it is to be noted that the words "any person' is
qualified by the phrase

... on the insured's order or with his permission.' It is therefore clear that if the person
driving is other than the insured, he must have been duly authorized by the insured,
to drive the vehicle to make the insurance company liable for the driver's negligence.
 Complainant admitted that she did not know the person who drove her vehicle at the
time of the accident, much less consented to the use of the same (par. 5 of the
complaint). Her husband likewise admitted that he neither knew this driver Benito
Mabasa (Exhibit '4'). With these declarations of complainant and her husband, we
hold that the person who drove the vehicle, in the person of Benito Mabasa, is not an
authorized driver of the complainant. Apparently, this is a violation of the 'Authorized
Driver' clause of the policy.

Respondent commission likewise upheld private respondent's assertion that the car was not stolen
and therefore not covered by the Theft clause, ruling that "The element of 'taking' in Article 308 of
the Revised Penal Code means that the act of depriving another of the possession and dominion of
a movable thing is coupled ... with the intention. at the time of the 'taking', of withholding it with the
character of permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must have
been shown a felonious intent upon the part of the taker of the car, and the intent must be an intent
permanently to deprive the insured of his car," and that "Such was not the case in this instance. The
fact that the car was taken by one of the residents of the Sunday Machine Works, and the
withholding of the same, for a joy ride should not be construed to mean 'taking' under Art. 308 of the
Revised Penal Code. If at all there was a 'taking', the same was merely temporary in nature. A
temporary taking is held not a taking insured against (48 A LR 2d., page 15)."

The Court finds respondent commission's dismissal of the complaint to be contrary to the evidence
and the law.

First, respondent commission's ruling that the person who drove the vehicle in the person of Benito
Mabasa, who, according to its finding, was one of the residents of the Sunday Machine Works, Inc.
to whom the car had been entrusted for general check-up and repairs was not an "authorized driver"
of petitioner-complainant is too restrictive and contrary to the established principle that insurance
contracts, being contracts of adhesion where the only participation of the other party is the signing of
his signature or his "adhesion" thereto, "obviously call for greater strictness and vigilance on the part
of courts of justice with a view of protecting the weaker party from abuse and imposition, and prevent
their becoming traps for the unwary.2

The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a
person other than the insured owner, who drives the car on the insured's order, such as his regular
driver, or with his permission, such as a friend or member of the family or the employees of a car
service or repair shop must be duly licensed drivers and have no disqualification to drive a motor
vehicle.

A car owner who entrusts his car to an established car service and repair shop necessarily entrusts
his car key to the shop owner and employees who are presumed to have the insured's permission to
drive the car for legitimate purposes of checking or road-testing the car. The mere happenstance
that the employee(s) of the shop owner diverts the use of the car to his own illicit or unauthorized
purpose in violation of the trust reposed in the shop by the insured car owner does not mean that the
"authorized driver" clause has been violated such as to bar recovery, provided that such employee is
duly qualified to drive under a valid driver's license.

The situation is no different from the regular or family driver, who instead of carrying out the owner's
order to fetch the children from school takes out his girl friend instead for a joy ride and instead
wrecks the car. There is no question of his being an "authorized driver" which allows recovery of the
loss although his trip was for a personal or illicit purpose without the owner's authorization.

Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft
clause, not the "authorized driver" clause, that applies), where a car is admittedly as in this case
unlawfully and wrongfully taken by some people, be they employees of the car shop or not to whom
it had been entrusted, and taken on a long trip to Montalban without the owner's consent or
knowledge, such taking constitutes or partakes of the nature of theft as defined in Article 308 of the
Revised Penal Code, viz. "Who are liable for theft. — Theft is committed by any person who, with
intent to gain but without violence against or intimidation of persons nor force upon things, shall take
personal property of another without the latter's consent," for purposes of recovering the loss under
the policy in question.

The Court rejects respondent commission's premise that there must be an intent on the part of the
taker of the car "permanently to deprive the insured of his car" and that since the taking here was for
a "joy ride" and "merely temporary in nature," a "temporary taking is held not a taking insured
against."

The evidence does not warrant respondent commission's findings that it was a mere "joy ride". From
the very investigator's report cited in its comment, 3 the police found from the waist of the car driver
Benito Mabasa Bartolome who smashed the car and was found dead right after the incident "one
cal. 45 Colt. and one apple type grenade," hardly the materials one would bring along on a "joy ride".
Then, again, it is equally evident that the taking proved to be quite permanent rather than temporary,
for the car was totally smashed in the fatal accident and was never returned in serviceable and
useful condition to petitioner-owner.

Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a "joy
ride", the Court sustains as the better view that which holds that when a person, either with the
object of going to a certain place, or learning how to drive, or enjoying a free ride, takes possession
of a vehicle belonging to another, without the consent of its owner, he is guilty of theft because by
taking possession of the personal property belonging to another and using it, his intent to gain is
evident since he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice Ramon C.
Aquino cites in his work Groizard who holds that the use of a thing constitutes gain and Cuello Calon
who calls it "hurt de uso. " 4

The insurer must therefore indemnify the petitioner-owner for the total loss of the insured car in the
sum of P35,000.00 under the theft clause of the policy, subject to the filing of such claim for
reimbursement or payment as it may have as subrogee against the Sunday Machine Works, Inc.

ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing
private respondent to pay petitioner the sum of P35,000.00 with legal interest from the filing of the
complaint until full payment is made and to pay the costs of suit.

SO ORDERED.

Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 60506 August 6, 1992

FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M.

MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed
MAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA, petitioners,
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and
AFISCO INSURANCE CORPORATION, respondents.

Jose B. Guyo for petitioners.

Angel E. Fernandez for private respondent.

ROMERO, J.:

The nature of the liability of an insurer sued together with the insured/operator-owner of a common
carrier which figured in an accident causing the death of a third person is sought to be defined in this
petition for certiorari.

The facts as found by the trial court are as follows:

. . . Lope Maglana was an employee of the Bureau of Customs whose work station
was at Lasa, here in Davao City. On December 20, 1978, early morning, Lope
Maglana was on his way to his work station, driving a motorcycle owned by the
Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death.
He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito
Into, operated and owned by defendant Destrajo. From the investigation conducted
by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that
was going towards the city poblacion. While overtaking, the PUJ jeep of defendant
Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by
the deceased who was going towards the direction of Lasa, Davao City. The point of
impact was on the lane of the motorcycle and the deceased was thrown from the
road and met his untimely death. 1

Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and
attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for
brevity) before the then Court of First Instance of Davao, Branch II. An information for homicide thru
reckless imprudence was also filed against Pepito Into.

During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one
(1) year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine
(9) months and eleven (11) days of prision correccional, as maximum, with all the accessory
penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve
thousand pesos (P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand
pesos (P5,000.00) in the concept of moral and exemplary damages with costs. No appeal was
interposed by accused who later applied for probation. 2

On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised
sufficient diligence as the operator of the jeepney. The dispositive portion of the decision reads:

WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant
Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to
pay plaintiffs the sum of P12,000.00 which amount shall be deducted in the event
 judgment in Criminal Case No. 3527-D against the driver, accused Into, shall have
been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and burial
expenses of the deceased; to pay plaintiffs the sum of P5,000.00 as moral damages
which shall be deducted in the event judgment (sic) in Criminal Case No. 3527-D
against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's
fees and to pay the costs of suit.

The defendant insurance company is ordered to reimburse defendant Destrajo

whatever amounts the latter shall have paid only up to the extent of its insurance
coverage.

SO ORDERED. 3

Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of
the decision contending that AFISCO should not merely be held secondarily liable because the
Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally
with the operator of the vehicle, although only up to the extent of the insurance coverage." 4 Hence,
they argued that the P20,000.00 coverage of the insurance policy issued by AFISCO, should have
been awarded in their favor.

In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code
does not expressly provide for a solidary obligation, the presumption is that the obligation is joint.

In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that
since the insurance contract "is in the nature of suretyship, then the liability of the insurer is
secondary only up to the extent of the insurance coverage." 5

Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is
direct, primary and solidary with the jeepney operator because the petitioners became direct
beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. 6 This
motion was likewise denied for lack of merit.

Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal
of the lower court's decision in its entirety, prays for the setting aside or modification of the second
paragraph of the dispositive portion of said decision. Petitioners reassert their position that the
insurance company is directly and solidarily liable with the negligent operator up to the extent of its
insurance coverage.

We grant the petition.

The particular provision of the insurance policy on which petitioners base their claim is as follows:

Sec. 1 — LIABILITY TO THE PUBLIC

1. The Company will, subject to the Limits of Liability, pay all sums necessary to
discharge liability of the insured in respect of

(a) death of or bodily injury to any THIRD PARTY

(b) . . . .

2. . . . .

3. In the event of the death of any person entitled to indemnity under this Policy, the
Company will, in respect of the liability incurred to such person indemnify his
personal representatives in terms of, and subject to the terms and conditions
hereof. 7

The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable
by petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an
insurance policy insures directly against liability, the insurer's liability accrues immediately upon the
occurrence of the injury or even upon which the liability depends, and does not depend on the
recovery of judgment by the injured party against the insured." 8 The underlying reason behind the third party
liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who
causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy . . ." 9 Since petitioners had
received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00.

However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan
Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to
the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident.
We categorically ruled thus:

While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however, the
direct liability of the insurer under indemnity contracts against third party liability does
not mean that the insurer can be held solidarily liable with the insured and/or the
other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos
(the injured third party), but it cannot, as incorrectly held by the trial court, be made
"solidarily" liable with the two principal tortfeasors, namely respondents Sio Choy and
San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said, two
(2) respondents by reason of the indemnity contract against third party liability —
under which an insurer can be directly sued by a third party — this will result in a
violation of the principles underlying solidary obligation and insurance contracts.
(emphasis supplied)

The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same
in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may
enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer
undertakes for a consideration to indemnify the insured against loss, damage or liability arising from
an unknown or contingent event. 11 Thus, petitioner therein, which, under the insurance contract is
liable only up to P20,000.00, can not be made solidarily liable with the insured for the entire
obligation of P29,013.00 otherwise there would result "an evident breach of the concept of solidary
obligation."

Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance
policy is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of
P53,901.70 in accordance with the decision of the lower court. Since under both the law and the
insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive
portion of the decision in question may have unwittingly sown confusion among the petitioners and
their counsel. What should have been clearly stressed as to leave no room for doubt was the liability
of AFISCO under the explicit terms of the insurance contract.

In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not
solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners
have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce
the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the
insurance coverage.

While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that
the lower court erred in the computation of the probable loss of income. Using the formula: 2/3 of
(80-56) x P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amount is
P192,000.00. Being a "plain error," we opt to correct the same. 14 Furthermore, in accordance with
prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15

WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of
P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death indemnity of
P12,000.00 to P50,000.00.

SO ORDERED.

Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 96452 May 7, 1992

PERLA COMPANIA DE SEGUROS, INC. petitioner,

vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.

G.R. No. 96493 May 7, 1992

FCP CREDIT CORPORATION, petitioner,

vs.

THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN
LIM, respondents.

Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.

Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.:

These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in
G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to annul
and set aside the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No. 13037,
which reversed the decision of the Regional Trial Court of Manila, Branch VIII in Civil Case No. 83-
19098 for replevin and damages. The dispositive portion of the decision of the Court of Appeals
reads, as follows:

WHEREFORE, the decision appealed from is reversed; and appellee Perla

Compania de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn
Lim for the loss of their insured vehicle; while said appellants are ordered to pay
appellee FCP Credit Corporation all the unpaid installments that were due and
payable before the date said vehicle was carnapped; and appellee Perla Compania
de Seguros, Inc. is also ordered to pay appellants moral damages of P12,000.00 for
the latter's mental sufferings, exemplary damages of P20,000.00 for appellee Perla
Compania de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the
just insurance claim of appellants by way of example and correction for public good,
and attorney's fees of P10,000.00 as a just and equitable reimbursement for the
expenses incurred therefor by appellants, and the costs of suit both in the lower court
and in this appeal. 2

The facts as found by the trial court are as follows:

On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a
promissory note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly installments
according to the schedule of payment indicated in said note, 3 and secured by a chattel mortgage
over a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor and serial No.
SUPJYK-03780, which is registered under the name of private respondent Herminio Lim 4 and
insured with the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive
coverage under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to
petitioner FCP Credit Corporation (FCP for brevity) its rights, title and interest on said promissory
note and chattel mortgage as shown by the Deed of Assignment. 6

At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back of
Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was
driving said car before it was carnapped, immediately called up the Anti-Carnapping Unit of the
Philippine Constabulary to report said incident and thereafter, went to the nearest police substation
at Araneta, Cubao to make a police report regarding said incident, as shown by the certification
issued by the Quezon City police. 7

On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land
Transportation Commission in Quezon City, as shown by the letter of her counsel to said office, 8 in
compliance with the insurance requirement. She also filed a complaint with the Headquarters, Constabulary Highway Patrol Group. 9

On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but said
claim was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using the
vehicle before it was carnapped, was in possession of an expired driver's license at the time of the
loss of said vehicle which is in violation of the authorized driver clause of the insurance policy, which
states, to wit:

AUTHORIZED DRIVER:

Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or
with his permission. Provided that the person driving is permitted, in accordance with
the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has
been permitted and is not disqualified by order of a Court of Law or by reason of any
enactment or regulation in that behalf. 11

On November 17, 1982, private respondents requests from petitioner FCP for a suspension of
payment on the monthly amortization agreed upon due to the loss of the vehicle and, since the
carnapped vehicle insured with petitioner Perla, said insurance company should be made to pay the
remaining balance of the promissory note and the chattel mortgage contract.

Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded that
private respondents pay the whole balance of the promissory note or to return the vehicle 12 but the
latter refused.

On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed an
amended third party complaint against petitioner Perla on December 8, 1983. After trial on the
merits, the trial court rendered a decision, the dispositive portion which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:

1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally,
plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per
annum from July 2, 1983 until fully paid;

2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the
costs of suit.

Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint
filed against Third-Party Defendant. 13

Not satisfied with said decision, private respondents appealed the same to the Court of Appeals,
which reversed said decision.

After petitioners' separate motions for reconsideration were denied by the Court of Appeals in its
resolution of December 10, 1990, petitioners filed these separate petitions for review on certiorari.

Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate court in
holding that private respondents did not violate the insurance contract because the authorized driver
clause is not applicable to the "Theft" clause of said Contract.
For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exempted the
debtor from his admitted obligations under the promissory note particularly the payment of interest,
litigation expenses and attorney's fees.

We find no merit in Perla's petition.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the
private respondents against loss or damage to the car (a) by accidental collision or overturning, or
collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by
malicious act.14

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's
consent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and
not the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent
court in its decision:

. . . Theft is an entirely different legal concept from that of accident. Theft is

committed by a person with the intent to gain or, to put it in another way, with the
concurrence of the doer's will. On the other hand, accident, although it may proceed
or result from negligence, is the happening of an event without the concurrence of
the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol.
I, 1914 ed., p. 101).

Clearly, the risk against accident is distinct from the risk against theft. The
"authorized driver clause" in a typical insurance policy is in contemplation or
anticipation of accident in the legal sense in which it should be understood, and not
in contemplation or anticipation of an event such as theft. The distinction — often
seized upon by insurance companies in resisting claims from their assureds —
between death occurring as a result of accident and death occurring as a result of
intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had
figured in an accident at the time she drove it with an expired license, then, appellee
Perla Compania could properly resist appellants' claim for indemnification for the loss
or destruction of the vehicle resulting from the accident. But in the present case. The
loss of the insured vehicle did not result from an accident where intent was involved;
the loss in the present case was caused by theft, the commission of which was
attended by intent. 15

It is worthy to note that there is no causal connection between the possession of a valid driver's
license and the loss of a vehicle. To rule otherwise would render car insurance practically a sham
since an insurance company can easily escape liability by citing restrictions which are not applicable
or germane to the claim, thereby reducing indemnity to a shadow.

We however find the petition of FCP meritorious.

This Court agrees with petitioner FCP that private respondents are not relieved of their obligation to
pay the former the installments due on the promissory note on account of the loss of the automobile.
The chattel mortgage constituted over the automobile is merely an accessory contract to the
promissory note. Being the principal contract, the promissory note is unaffected by whatever befalls
the subject matter of the accessory contract. Therefore, the unpaid balance on the promissory note
should be paid, and not just the installments due and payable before the automobile was carnapped,
as erronously held by the Court of Appeals.

However, this does not mean that private respondents are bound to pay the interest, litigation
expenses and attorney's fees stipulated in the promissory note. Because of the peculiar relationship
between the three contracts in this case, i.e., the promissory note, the chattel mortgage contract and
the insurance policy, this Court is compelled to construe all three contracts as intimately interrelated
to each other, despite the fact that at first glance there is no relationship whatsoever between the
parties thereto.

Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount
stated therein in accordance with the schedule provided for. To secure said promissory note, private
respondents constituted a chattel mortgage in favor of Supercars, Inc. over the automobile the
former purchased from the latter. The chattel mortgage, in turn, required private respondents to
insure the automobile and to make the proceeds thereof payable to Supercars, Inc. The promissory
note and chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the knowledge
of private respondents. Private respondents were able to secure an insurance policy from petitioner
Perla, and the same was made specifically payable to petitioner FCP. 16

The insurance policy was therefore meant to be an additional security to the principal contract, that
is, to insure that the promissory note will still be paid in case the automobile is lost through accident
or theft. The Chattel Mortgage Contract provided that:

THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE
THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST
LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE
YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE
MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR
COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS
THAN THE OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT
HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES,
PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY
APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE
MORTGAGEE, . . . . 17

It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance
company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP, the
outstanding balance of the mortgage at the time of said loss under the mortgage contract. If the
claim on the insurance policy had been approved by petitioner Perla, it would have paid the
proceeds thereof directly to petitioner FCP, and this would have had the effect of extinguishing
private respondents' obligation to petitioner FCP. Therefore, private respondents were justified in
asking petitioner FCP to demand the unpaid installments from petitioner Perla.

Because petitioner Perla had unreasonably denied their valid claim, private respondents should not
be made to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory
note. As mentioned above, the contract of indemnity was procured to insure the return of the money
loaned from petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid claim
of the private respondents should not in any way prejudice the latter.

Private respondents can not be said to have unduly enriched themselves at the expense of petitioner
FCP since they will be required to pay the latter the unpaid balance of its obligation under the
promissory note.

In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring
petitioner Perla to indemnify private respondents for the loss of their insured vehicle. However, the
latter should be ordered to pay petitioner FCP the amount of P55,055.93, representing the unpaid
installments from December 30, 1982 up to July 1, 1983, as shown in the statement of account
prepared by petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid.

As to the award of moral damages, exemplary damages and attorney's fees, private respondents are
legally entitled to the same since petitioner Perla had acted in bad faith by unreasonably refusing to
honor the insurance claim of the private respondents. Besides, awards for moral and exemplary
damages, as well as attorney's fees are left to the sound discretion of the Court. Such discretion, if
well exercised, will not be disturbed on appeal. 19

WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private
respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983
until fully paid. The decision appealed from is hereby affirmed as to all other respects. No
pronouncement as to costs.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 114427 February 6, 1995

ARMANDO GEAGONIA, petitioner,

vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision1 of the Court of Appeals in CA-
G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia,"
reversing the decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim
of petitioner Armando Geagonia against private respondent Country Bankers Insurance Corporation.

The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan
del Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F-
146222 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990
and covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men
and women wear and other usual to assured's business."

The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his
inventory stocks amounting to P392,130.50, itemized as follows:

Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
—————
P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances
already affected, or which may subsequently be effected, covering any of the
property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless such notice be given and the particulars
of such insurance or insurances be stated therein or endorsed in this policy pursuant
to Section 50 of the Insurance Code, by or on behalf of the Company before the
occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total
insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00.

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed
prompting him to file with the private respondent a claim under the policy. On 28 December 1990,
the private respondent denied the claim because it found that at the time of the loss the petitioner's
stocks-in-trade were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144,
for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc.
(hereinafter PFIC). 3 These policies indicate that the insured was "Messrs. Discount Mart (Mr.
Armando Geagonia, Prop.)" with a mortgage clause reading:
 MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu
City as their interest may appear subject to the terms of this policy. CO-INSURANCE
DECLARED: P100,000. — Phils. First CEB/F 24758.4

The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of
the policy.

The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission
(Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for
attorney's fees and costs of litigation. He attached as Annex "AM"6 thereof his letter of 18 January
1991 which asked for the reconsideration of the denial. He admitted in the said letter that at the time
he obtained the private respondent's fire insurance policy he knew that the two policies issued by the
PFIC were already in existence; however, he had no knowledge of the provision in the private
respondent's policy requiring him to inform it of the prior policies; this requirement was not
mentioned to him by the private respondent's agent; and had it been mentioned, he would not have
withheld such information. He further asserted that the total of the amounts claimed under the three
policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00.

In its answer,7 the private respondent specifically denied the allegations in the complaint and set up
as its principal defense the violation of Condition 3 of the policy.

In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from
the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or
securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the
stocks. These findings were based on the petitioner's testimony that he came to know of the PFIC
policies only when he filed his claim with the private respondent and that Cebu Tesing Textile
obtained them and paid for their premiums without informing him thereof. The Insurance
Commission then decreed:

WHEREFORE, judgment is hereby rendered ordering the respondent company to

pay complainant the sum of P100,000.00 with legal interest from the time the
complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's
fees. With costs. The compulsory counterclaim of respondent is hereby dismissed.

Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission
in its resolution of 20 August 1993, 10 the private respondent appealed to the Court of Appeals by
way of a petition for review. The petition was docketed as CA-G.R. SP No. 31916.

In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of the existence of the two other policies
issued by the PFIC. It said:

It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the
insurance was taken in the name of private respondent [petitioner herein]. The policy
states that "DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the
assured and that "TESING TEXTILES" [was] only the mortgagee of the goods.

In addition, the premiums on both policies were paid for by private respondent, not by
the Tesing Textiles which is alleged to have taken out the other insurance without the
knowledge of private respondent. This is shown by Premium Invoices nos. 46632
and 46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be
only the mortgagee of the goods insured but the party to which they were issued
were the "DISCOUNT MART (MR. ARMANDO GEAGONIA)."

In is clear that it was the private respondent [petitioner herein] who took out the
policies on the same property subject of the insurance with petitioner. Hence, in
failing to disclose the existence of these insurances private respondent violated
Condition No. 3 of Fire Policy No. 1462. . . .

Indeed private respondent's allegation of lack of knowledge of the provisions

insurances is belied by his letter to petitioner [of 18 January 1991. The body of the
letter reads as follows;]
 xxx xxx xxx

Please be informed that I have no knowledge of the provision

requiring me to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your
representative did not mention about said requirement at the time he
was convincing me to insure with you. If he only die or even inquired
if I had other existing policies covering my establishment, I would
have told him so. You will note that at the time he talked to me until I
decided to insure with your company the two policies aforementioned
were already in effect. Therefore I would have no reason to withhold
such information and I would have desisted to part with my hard
earned peso to pay the insurance premiums [if] I know I could not
recover anything.

Sir, I am only an ordinary businessman interested in protecting my

investments. The actual value of my stocks damaged by the fire was
estimated by the Police Department to be P1,000,000.00 (Please see
xerox copy of Police Report Annex "A"). My Income Statement as of
December 31, 1989 or five months before the fire, shows my
merchandise inventory was already some P595,455.75. . . . These
will support my claim that the amount claimed under the three policies
are much below the value of my stocks lost.

xxx xxx xxx

The letter contradicts private respondent's pretension that he did not know that there
were other insurances taken on the stock-in-trade and seriously puts in question his
credibility.

His motion to reconsider the adverse decision having been denied, the petitioner filed the instant
petition. He contends therein that the Court of Appeals acted with grave abuse of discretion
amounting to lack or excess of jurisdiction:

A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE

COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF
DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED
RESPECT AND EVEN FINALITY BY THE COURTS;

B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT

PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND

C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN

AGAINST THE PRIVATE RESPONDENT.

The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior
knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance
policy from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the
policy, and (b) if he had, whether he is precluded from recovering therefrom.

The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was
not offered in evidence and thus should not have been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's
complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of the complaint. 12 It
has attained the status of a judicial admission and since its due execution and authenticity was not
denied by the other party, the petitioner is bound by it even if it were not introduced as an
independent evidence. 13

As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the
previous two policies. The Court of Appeals disagreed and found otherwise in view of the explicit
admission by the petitioner in his letter to the private respondent of 18 January 1991, which was
quoted in the challenged decision of the Court of Appeals. These divergent findings of fact constitute
an exception to the general rule that in petitions for review under Rule 45, only questions of law are
involved and findings of fact by the Court of Appeals are conclusive and binding upon this Court. 14

We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC.
His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His
testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot
prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not
know about the prior policies since these policies were not new or original. Policy No. GA-28144 was
a renewal of Policy No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous
policy being F-24792.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by
law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which provides
that "[a] policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy." Such a condition is a provision which
invariably appears in fire insurance policies and is intended to prevent an increase in the moral
hazard. It is commonly known as the additional or "other insurance" clause and has been upheld as
valid and as a warranty that no other insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject
matter, the same interest therein, and the same risk.17

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be one policy, or each may take out a separate policy
covering his interest, either at the same or at separate times. 18 The mortgagor's insurable interest
covers the full value of the mortgaged property, even though the mortgage debt is equivalent to the
full value of the property.19 The mortgagee's insurable interest is to the extent of the debt, since the
property is relied upon as security thereof, and in insuring he is not insuring the property but his
interest or lien thereon. His insurable interest is prima facie the value mortgaged and extends only to
the amount of the debt, not exceeding the value of the mortgaged property. 20 Thus, separate
insurances covering different insurable interests may be obtained by the mortgagor and the
mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual
practice. The mortgagee may be made the beneficial payee in several ways. He may become the
assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or
the original policy may contain a mortgage clause; or a rider making the policy payable to the
mortgagee "as his interest may appear" may be attached; or a "standard mortgage clause,"
containing a collateral independent contract between the mortgagee and insurer, may be attached;
or the policy, though by its terms payable absolutely to the mortgagor, may have been procured by a
mortgagor under a contract duty to insure for the mortgagee's benefit, in which case the mortgagee
acquires an equitable lien upon the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such
by the insurer but not made a party to the contract himself. Hence, any act of the mortgagor which
defeats his right will also defeat the right of the mortgagee. 22 This kind of policy covers only such
interest as the mortgagee has at the issuing of the policy.23

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with
the terms of an agreement by which the mortgagor is to pay the premiums upon such insurance. 24 It
has been noted, however, that although the mortgagee is himself the insured, as where he applies
for a policy, fully informs the authorized agent of his interest, pays the premiums, and obtains on the
assurance that it insures him, the policy is in fact in the form used to insure a mortgagor with loss
payable clause. 25

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a
mortgage clause which reads:

Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their
interest may appear subject to the terms of this policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved in General
Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which
read:

The insured shall give notice to the company of any insurance or insurances already
effected, or which may subsequently be effected covering any of the property hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated in or endorsed on this Policy by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this Policy shall be
forfeited.

or in the 1930 case of Santa Ana vs. Commercial Union Assurance

Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the
objects thereby assured must be declared by the insured in writing and he must cause the
company to add or insert it in the policy, without which such policy shall be null and void, and
the insured will not be entitled to indemnity in case of loss," Condition 3 in the private
respondent's policy No. F-14622 does not absolutely declare void any violation thereof. It
expressly provides that the condition "shall not apply when the total insurance or insurances
in force at the time of the loss or damage is not more than P200,000.00."

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in

favor of the insured and strictly against the company, the reason being, undoubtedly, to afford the
greatest protection which the insured was endeavoring to secure when he applied for insurance. It is
also a cardinal principle of law that forfeitures are not favored and that any construction which would
result in the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is
possible to construe the policy in a manner which would permit recovery, as, for example, by finding
a waiver for such forfeiture. 29 Stated differently, provisions, conditions or exceptions in policies which
tend to work a forfeiture of insurance policies should be construed most strictly against those for
whose benefits they are inserted, and most favorably toward those against whom they are intended
to operate. 30 The reason for this is that, except for riders which may later be inserted, the insured
sees the contract already in its final form and has had no voice in the selection or arrangement of the
words employed therein. On the other hand, the language of the contract was carefully chosen and
deliberated upon by experts and legal advisers who had acted exclusively in the interest of the
insurers and the technical language employed therein is rarely understood by ordinary laymen. 31

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally
free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to
conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy
shall only be to the extent exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering
any of the property or properties consisting of stocks in trade, goods in process and/or inventories
only hereby insured," and the portion regarding the insured's declaration on the subheading CO-
INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A
double insurance exists where the same person is insured by several insurers separately in respect
of the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a
mortgagee on the mortgaged property are distinct and separate. Since the two policies of the PFIC
do not cover the same interest as that covered by the policy of the private respondent, no double
insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's right
to recover on the private respondent's policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total
insurance in force at the time of loss does not exceed P200,000.00, the private respondent was
amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in
mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other
insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of
fraud. When a property owner obtains insurance policies from two or more insurers in a total amount
that exceeds the property's value, the insured may have an inducement to destroy the property for
the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured.32

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-
G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340
is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.

SO ORDERED.

Padilla, Bellosillo, Quiason and Kapunan, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is
liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or
whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial
court and the Court of Appeals held that there should be recovery. The petitioner contends
otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by
private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner
Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum
of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of
Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to
its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch
146 thereof.

After joinder of issues, the parties asked the trial court to render judgment based on the following
stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance

policy was issued, the duplicate original of which is hereto attached
as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring

cash in the sum of P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its Head Office at 8737
Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was
robbed of the said cash. The robbery took place while the armored
car was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de

Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver
Magalong was assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on August 7, 1983, a
duplicate original copy of which is hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security

Services, Inc. with the plaintiff by virtue of a contract of Security
Service executed on October 25, 1982, a duplicate original copy of
which is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities,

the driver Magalong and guard Atiga were charged, together with
Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of
Pasay City. A copy of the complaint is hereto attached as Exhibit "D";
 6. The Fiscal of Pasay City then filed an information charging the
aforesaid persons with the said crime before Branch 112 of the
Regional Trial Court of Pasay City. A copy of the said information is
hereto attached as Exhibit "E." The case is still being tried as of this
date;

7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as
the loss is excluded from the coverage of the insurance policy,
attached hereto as Exhibit "A," specifically under page 1 thereof,
"General Exceptions" Section (b), which is marked as Exhibit "A-1,"
and which reads as follows:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or

criminal act of the insured or any officer, employee,
partner, director, trustee or authorized
representative of the Insured whether acting alone or
in conjunction with others. . . .

8. The plaintiff opposes the contention of the defendant and contends

that Atiga and Magalong are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the robbery.1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion
thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and

(a) orders defendant to pay plaintiff the net amount of

P540,000.00 as liability under Policy No. 0207 (as
mitigated by the P40,000.00 special clause deduction
and by the recovered sum of P145,000.00), with
interest thereon at the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of

P30,000.00 as and for attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It
Said:

The Court is satisfied that plaintiff may not be said to have selected and engaged
Magalong and Atiga, their services as armored car driver and as security guard
having been merely offered by PRC Management and by Unicorn Security and which
latter firms assigned them to plaintiff. The wages and salaries of both Magalong and
Atiga are presumably paid by their respective firms, which alone wields the power to
dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of
agreements to provide driving services and property protection as such — in a
context which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond perhaps entitling
plaintiff to request are replacement for such driver guard. The finding is accordingly
 compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance
of defendant's liability under the policy, particularly the general exceptions therein
embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and
guard Atiga were the "authorized representatives" of plaintiff. They were merely an
assigned armored car driver and security guard, respectively, for the June 29, 1987
money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
— it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then designated
"messenger" adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No.
32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were
neither employees nor authorized representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the insured

and strictly against the insurance company (New Life Enterprises vs. Court of
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). Contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used. If such
terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun
Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain,

ordinary and simple. No other interpretation is necessary. The word "employee" must
be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically designed to
protect labor and therefore its definition as to employer-employee relationships
insofar as the application/enforcement of said Code is concerned must necessarily
be inapplicable to an insurance contract which defendant-appellant itself had
formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-

appellee bank because it has no power to hire or to dismiss said driver and security
guard under the contracts (Exhs. 8 and C) except only to ask for their replacements
from the contractors.5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and
the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within
the general exceptions clause considering that driver Magalong and security guard Atiga were
Producers' authorized representatives or employees in the transfer of the money and payroll from its
branch office in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from
one branch to another, they effectively and necessarily became its authorized representatives in the
care and custody of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an
employer-employee relationship "is determined by law and being such, it cannot be the subject of
agreement." Thus, if there was in reality an employer-employee relationship between Producers, on
the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers
with PRC Management System for Magalong and with Unicorn Security Services for Atiga which
state that Producers is not their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the
manner of selection and engagement of the putative employee; (2) the mode of payment of wages;
(3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct. Of the four, the right-of-control test has been held to be the
decisive factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and
exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security
Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. — There is "labor-only" contracting where the

person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as
if the latter were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling
in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its employees since it had
nothing to do with their selection and engagement, the payment of their wages, their dismissal, and
the control of their conduct. Producers argued that the rule in International Timber Corp. is not
applicable to all cases but only when it becomes necessary to prevent any violation or circumvention
of the Labor Code, a social legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule in American President Lines
vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following

elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which assigned
Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of
his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per
driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not
Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn
Security Services which provides that the guards of the latter "are in no sense employees of the
CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of insurance such as fire or marine.
It includes, but is not limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance. (emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These
contracts are, therefore, governed by the general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must be determined by the terms of their
contract, taking into consideration its purpose and always in accordance with the general principles
of insurance law. 9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their
policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons frequently excluded
under such provisions are those in the insured's service and employment. 11 The purpose of the
exception is to guard against liability should the theft be committed by one having unrestricted
access to the property. 12 In such cases, the terms specifying the excluded classes are to be given
their meaning as understood in common speech. 13 The terms "service" and "employment" are
generally associated with the idea of selection, control, and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved
against the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the
insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without
saying then that if the terms of the contract are clear and unambiguous, there is no room for
construction and such terms cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It
is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence
of statutory prohibition to the contrary, insurance companies have the same rights as individuals to
limit their liability and to impose whatever conditions they deem best upon their obligations not
inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as
employees or authorized representatives of Producers under paragraph (b) of the general
exceptions clause of the policy which, for easy reference, is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in
conjunction with others. . . . (emphases supplied)

There is marked disagreement between the parties on the correct meaning of the terms "employee"
and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons
granted or having unrestricted access to Producers' money or payroll. When it used then the term
"employee," it must have had in mind any person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the
case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract
as employees of the party employing them and not of the party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security
Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of
Magalong. Notwithstanding such express assumption of PRC Management Systems and
Unicorn Security Services that the drivers and the security guards each shall supply to
Producers are not the latter's employees, it may, in fact, be that it is because the contracts
are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for
in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the
case for judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the
City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and
PRC Management Systems and Unicorn Security Services were truly independent contractors, we
are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its
Pasay City branch to its head office in Makati, its "authorized representatives" who served as such
with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific
duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide
the needed security for the money, the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A "representative" is defined as one who
represents or stands in the place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in
CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court
of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No.
1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Bellosillo and Kapunan, JJ., concur.

Padilla, J., took no part.

Quiason, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-34200 September 30, 1982

REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-appellants,

vs.
MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST INSTANCE
OF RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.

K.V. Faylona for petitioners-appellants.

L. L. Reyes for respondents-appellees.

VASQUEZ, J.:

The question of law raised in this case that justified a direct appeal from a decision of the Court of
First Instance Rizal, Branch V, Quezon City, to be taken directly to the Supreme Court is whether or
not the acceptance by the private respondent insurance corporation of the premium and the
issuance of the corresponding certificate of insurance should be deemed a waiver of the
exclusionary condition of overage stated in the said certificate of insurance.

The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz applied with
respondent insurance corporation for insurance coverage against accident and injuries. She filled up
the blank application form given to her and filed the same with the respondent insurance corporation.
In the said application form which was dated April 15, 1969, she gave the date of her birth as July
11, 1904. On the same date, she paid the sum of P20.00 representing the premium for which she
was issued the corresponding receipt signed by an authorized agent of the respondent insurance
corporation. (Rollo, p. 27.) Upon the filing of said application and the payment of the premium on the
policy applied for, the respondent insurance corporation issued to Carmen O. Lapuz its Certificate of
Insurance No. 128866. (Rollo, p. 28.) The policy was to be effective for a period of 90 days.

On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886, Carmen O. Lapuz
died in a vehicular accident in the North Diversion Road.

On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the named
beneficiary in the policy, filed her claim for the proceeds of the insurance, submitting all the
necessary papers and other requisites with the private respondent. Her claim having been denied,
Regina L. Edillon instituted this action in the Court of First Instance of Rizal on August 27, 1969.

In resisting the claim of the petitioner, the respondent insurance corporation relies on a provision
contained in the Certificate of Insurance, excluding its liability to pay claims under the policy in behalf
of "persons who are under the age of sixteen (16) years of age or over the age of sixty (60) years ..."
It is pointed out that the insured being over sixty (60) years of age when she applied for the
insurance coverage, the policy was null and void, and no risk on the part of the respondent
insurance corporation had arisen therefrom.

The trial court sustained the contention of the private respondent and dismissed the complaint;
ordered the petitioner to pay attorney's fees in the sum of ONE THOUSAND (P1,000.00) PESOS in
favor of the private respondent; and ordered the private respondent to return the sum of TWENTY
(P20.00) PESOS received by way of premium on the insurancy policy. It was reasoned out that a
policy of insurance being a contract of adhesion, it was the duty of the insured to know the terms of
the contract he or she is entering into; the insured in this case, upon learning from its terms that she
could not have been qualified under the conditions stated in said contract, what she should have
done is simply to ask for a refund of the premium that she paid. It was further argued by the trial
court that the ruling calling for a liberal interpretation of an insurance contract in favor of the insured
and strictly against the insurer may not be applied in the present case in view of the peculiar facts
and circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age of the insured Carmen 0. Lapuz was not
concealed to the insurance company. Her application for insurance coverage which was on a printed
form furnished by private respondent and which contained very few items of information clearly
indicated her age of the time of filing the same to be almost 65 years of age. Despite such
information which could hardly be overlooked in the application form, considering its prominence
thereon and its materiality to the coverage applied for, the respondent insurance corporation
received her payment of premium and issued the corresponding certificate of insurance without
question. The accident which resulted in the death of the insured, a risk covered by the policy,
occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for.
There was sufficient time for the private respondent to process the application and to notice that the
applicant was over 60 years of age and thereby cancel the policy on that ground if it was minded to
do so. If the private respondent failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for which it has only
itself to blame, it simply overlooked such fact. Under the circumstances, the insurance corporation is
already deemed in estoppel. It inaction to revoke the policy despite a departure from the
exclusionary condition contained in the said policy constituted a waiver of such condition, as was
held in the case of "Que Chee Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85. This case
involved a claim on an insurance policy which contained a provision as to the installation of fire
hydrants the number of which depended on the height of the external wan perimeter of the bodega
that was insured. When it was determined that the bodega should have eleven (11) fire hydrants in
the compound as required by the terms of the policy, instead of only two (2) that it had, the claim
under the policy was resisted on that ground. In ruling that the said deviation from the terms of the
policy did not prevent the claim under the same, this Court stated the following:

We are in agreement with the trial Court that the appellant is barred by waiver (or
rather estoppel) to claim violation of the so-called fire hydrants warranty, for the
reason that knowing fully an that the number of hydrants demanded therein never
existed from the very beginning, the appellant nevertheless issued the policies in
question subject to such warranty, and received the corresponding premiums. It
would be perilously close to conniving at fraud upon the insured to allow appellant to
claim now as void ab initio the policies that it had issued to the plaintiff without
warning of their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.

The insurance company was aware, even before the policies were issued, that in the
premises insured there were only two fire hydrants installed by Que Chee Gan and
two others nearby, owned by the municipality of Tabaco, contrary to the
requirements of the warranty in question. Such fact appears from positive testimony
for the insured that appellant's agents inspected the premises; and the simple denials
of appellant's representative (Jamiczon) can not overcome that proof. That such
inspection was made it moreover rendered probable by its being a prerequisite for
the fixing of the discount on the premium to which the insured was entitled, since the
discount depended on the number of hydrants, and the fire fighting equipment
available (See"'Scale of Allowances" to which the policies were expressly made
subject). The law, supported by a long line of cases, is expressed by American
Jurisprudence (Vol. 29, pp. 611-612) to be as follows:

It is usually held that where the insurer, at the time of the issuance of
a policy of insurance, has knowledge of existing facts which, if
insisted on, would invalidate the contract from its very inception, such
knowledge constitutes a waiver of conditions in the contract
inconsistent with the known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The law is
charitable enough to assume, in the absence of any showing to the
contrary, that an insurance company intends to execute a valid
contract in return for the premium received; and when the policy
contains a condition which renders it voidable at its inception, and this
result is known to the insurer, it will be presumed to have intended to
waive the conditions and to execute a binding contract, rather than to
have deceived the insured into thinking he is insured when in fact he
is not, and to have taken is money without consideration.' (29 Am.
Jur., Insurance, section 807, at pp. 611-612.)

The reason for the rule is not difficult to find.

 The plain, human justice of this doctrine is perfectly apparent. To
allow a company to accept one's money for a policy of insurance
which it then knows to be void and of no effect, though it knows as it
must, that the assured believes it to be valid and binding, is so
contrary to the dictates of honesty and fair dealing, and so closely
related to positive fraud, as to be abhorent to fairminded men. It
would be to allow the company to treat the policy as valid long
enough to get the premium on it, and leave it at liberty to repudiate it
the next moment. This cannot be deemed to be the real intention of
the parties. To hold that a literal construction of the policy expressed
the true intention of the company would be to indict it, for fraudulent
purposes and designs which we cannot believe it to be guilty of
(Wilson vs. Commercial Union Assurance Co., 96 Atl. 540, 543544).

A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs. Plastic Era Co.,
Inc., 65 SCRA 134, which involved a violation of the provision of the policy requiring the payment of
premiums before the insurance shall become effective. The company issued the policy upon the
execution of a promissory note for the payment of the premium. A check given subsequent by the
insured as partial payment of the premium was dishonored for lack of funds. Despite such deviation
from the terms of the policy, the insurer was held liable.

Significantly, in the case before Us the Capital Insurance accepted the promise of
Plastic Era to pay the insurance premium within thirty (30) days from the effective
date of policy. By so doing, it has impliedly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it would only pay for
the loss or damage in case the same occurs after the payment of the premium.
Considering that the insurance policy is silent as to the mode of payment, Capital
Insurance is deemed to have accepted the promissory note in payment of the
premium. This rendered the policy immediately operative on the date it was
delivered. The view taken in most cases in the United States:

... is that although one of conditions of an insurance policy is that "it

shall not be valid or binding until the first premium is paid", if it is
silent as to the mode of payment, promissory notes received by the
company must be deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment of the first or
initial premium in advance or actual cash may be waived by
acceptance of a promissory note...

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu thereof,
the private respondent insurance corporation is hereby ordered to pay to the petitioner the sum of
TEN THOUSAND (P10,000.00) PESOS as proceeds of Insurance Certificate No. 128866 with
interest at the legal rate from May 31, 1969 until fully paid, the further sum of TWO THOUSAND
(P2,000.00) PESOS as and for attorney's fees, and the costs of suit.

SO ORDERED.

Teehankee (Chairman), Makasiar, Plana, Relova and Gutierrez, Jr., JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-39419 April 12, 1982

MAPALAD AISPORNA, petitioner,

vs.
THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

DE CASTRO, J.:

In this petition for certiorari, petitioner-accused Aisporna seeks the reversal of the decision dated
August 14, 1974 1in CA-G.R. No. 13243-CR entitled "People of the Philippines, plaintiff-appellee, vs.
Mapalad Aisporna, defendant-appellant" of respondent Court of Appeals affirming the judgment of the
City Court of Cabanatuan 2 rendered on August 2, 1971 which found the petitioner guilty for having
violated Section 189 of the Insurance Act (Act No. 2427, as amended) and sentenced her to pay a fine of
P500.00 with subsidiary imprisonment in case of insolvency, and to pay the costs.

Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of Section 189 of the
Insurance Act on November 21, 1970 in an information 3 which reads as follows:

That on or before the 21st day of June, 1969, in the City of Cabanatuan, Republic of
the Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused, did then and there, wilfully, unlawfully and feloniously act as agent in the
solicitation or procurement of an application for insurance by soliciting therefor the
application of one Eugenio S. Isidro, for and in behalf of Perla Compania de Seguros,
Inc., a duly organized insurance company, registered under the laws of the Republic
of the Philippines, resulting in the issuance of a Broad Personal Accident Policy No.
28PI-RSA 0001 in the amount not exceeding FIVE THOUSAND PESOS (P5,000.00)
dated June 21, 1969, without said accused having first secured a certificate of
authority to act as such agent from the office of the Insurance Commissioner,
Republic of the Philippines.

CONTRARY TO LAW.

The facts, 4 as found by the respondent Court of Appeals are quoted hereunder:

IT RESULTING: That there is no debate that since 7 March, 1969 and as of 21 June,
1969, appellant's husband, Rodolfo S. Aisporna was duly licensed by Insurance
Commission as agent to Perla Compania de Seguros, with license to expire on 30
June, 1970, Exh. C; on that date, at Cabanatuan City, Personal Accident Policy, Exh.
D was issued by Perla thru its author representative, Rodolfo S. Aisporna, for a
period of twelve (12) months with beneficiary as Ana M. Isidro, and for P5,000.00;
apparently, insured died by violence during lifetime of policy, and for reasons not
explained in record, present information was filed by Fiscal, with assistance of private
prosecutor, charging wife of Rodolfo with violation of Sec. 189 of Insurance Law for
having, wilfully, unlawfully, and feloniously acted, "as agent in the solicitation for
insurance by soliciting therefore the application of one Eugenio S. Isidro for and in
behalf of Perla Compaña de Seguros, ... without said accused having first secured a
certificate of authority to act as such agent from the office of the Insurance
Commission, Republic of the Philippines."

and in the trial, People presented evidence that was hardly disputed, that
aforementioned policy was issued with active participation of appellant wife of
 Rodolfo, against which appellant in her defense sought to show that being the wife of
true agent, Rodolfo, she naturally helped him in his work, as clerk, and that policy
was merely a renewal and was issued because Isidro had called by telephone to
renew, and at that time, her husband, Rodolfo, was absent and so she left a note on
top of her husband's desk to renew ...

Consequently, the trial court found herein petitioner guilty as charged. On appeal, the trial court's
decision was affirmed by the respondent appellate court finding the petitioner guilty of a violation of
the first paragraph of Section 189 of the Insurance Act. Hence, this present recourse was filed on
October 22, 1974. 5

In its resolution of October 28, 1974, 6 this Court resolved, without giving due course to this instant
petition, to require the respondent to comment on the aforesaid petition. In the comment 7 filed on
December 20, 1974, the respondent, represented by the Office of the Solicitor General, submitted that
petitioner may not be considered as having violated Section 189 of the Insurance Act. 8 On April 3, 1975,
petitioner submitted his Brief 9 while the Solicitor General, on behalf of the respondent, filed a
manifestation 10 in lieu of a Brief on May 3, 1975 reiterating his stand that the petitioner has not violated
Section 189 of the Insurance Act.

In seeking reversal of the judgment of conviction, petitioner assigns the following errors 11 allegedly
committed by the appellate court:

1. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT RECEIPT

OF COMPENSATION IS NOT AN ESSENTIAL ELEMENT OF THE CRIME
DEFINED BY THE FIRST PARAGRAPH OF SECTION 189 OF THE INSURANCE
ACT.

2. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE WEIGHT

TO EXHIBITS F, F-1, TO F-17, INCLUSIVE SUFFICIENT TO ESTABLISH
PETITIONER'S GUILT BEYOND REASONABLE DOUBT.

3. THE RESPONDENT COURT OF APPEALS ERRED IN NOT ACQUITTING

HEREIN PETITIONER.

We find the petition meritorious.

The main issue raised is whether or not a person can be convicted of having violated the first
paragraph of Section 189 of the Insurance Act without reference to the second paragraph of the
same section. In other words, it is necessary to determine whether or not the agent mentioned in the
first paragraph of the aforesaid section is governed by the definition of an insurance agent found on
its second paragraph.

The pertinent provision of Section 189 of the Insurance Act reads as follows:

No insurance company doing business within the Philippine Islands, nor any agent
thereof, shall pay any commission or other compensation to any person for services
in obtaining new insurance, unless such person shall have first procured from the
Insurance Commissioner a certificate of authority to act as an agent of such
company as hereinafter provided. No person shall act as agent, sub-agent, or broker
in the solicitation of procurement of applications for insurance, or receive for services
in obtaining new insurance, any commission or other compensation from any
insurance company doing business in the Philippine Islands, or agent thereof,
without first procuring a certificate of authority so to act from the Insurance
Commissioner, which must be renewed annually on the first day of January, or within
six months thereafter. Such certificate shall be issued by the Insurance
Commissioner only upon the written application of persons desiring such authority,
such application being approved and countersigned by the company such person
desires to represent, and shall be upon a form approved by the Insurance
Commissioner, giving such information as he may require. The Insurance
Commissioner shall have the right to refuse to issue or renew and to revoke any
such certificate in his discretion. No such certificate shall be valid, however, in any
event after the first day of July of the year following the issuing of such certificate.
Renewal certificates may be issued upon the application of the company.
 Any person who for compensation solicits or obtains insurance on behalf of any
insurance company, or transmits for a person other than himself an application for a
policy of insurance to or from such company or offers or assumes to act in the
negotiating of such insurance, shall be an insurance agent within the intent of this
section, and shall thereby become liable to all the duties, requirements, liabilities,
and penalties to which an agent of such company is subject.

Any person or company violating the provisions of this section shall be fined in the
sum of five hundred pesos. On the conviction of any person acting as agent, sub-
agent, or broker, of the commission of any offense connected with the business of
insurance, the Insurance Commissioner shall immediately revoke the certificate of
authority issued to him and no such certificate shall thereafter be issued to such
convicted person.

A careful perusal of the above-quoted provision shows that the first paragraph thereof prohibits a
person from acting as agent, sub-agent or broker in the solicitation or procurement of applications for
insurance without first procuring a certificate of authority so to act from the Insurance Commissioner,
while its second paragraph defines who is an insurance agent within the intent of this section and,
finally, the third paragraph thereof prescribes the penalty to be imposed for its violation.

The respondent appellate court ruled that the petitioner is prosecuted not under the second
paragraph of Section 189 of the aforesaid Act but under its first paragraph. Thus —

... it can no longer be denied that it was appellant's most active endeavors that
resulted in issuance of policy to Isidro, she was there and then acting as agent, and
received the pay thereof — her defense that she was only acting as helper of her
husband can no longer be sustained, neither her point that she received no
compensation for issuance of the policy because

any person who for compensation solicits or obtains insurance on

behalf of any insurance company or transmits for a person other than
himself an application for a policy of insurance to or from such
company or offers or assumes to act in the negotiating of such
insurance, shall be an insurance agent within the intent of this
section, and shall thereby become liable to all the duties,
requirements, liabilities, and penalties, to which an agent of such
company is subject. paragraph 2, Sec. 189, Insurance Law,

now it is true that information does not even allege that she had obtained the
insurance,

for compensation

which is the gist of the offense in Section 189 of the Insurance Law in its 2nd
paragraph, but what appellant apparently overlooks is that she is prosecuted not
under the 2nd but under the 1st paragraph of Sec. 189 wherein it is provided that,

No person shall act as agent, sub-agent, or broker, in the solicitation

or procurement of applications for insurance, or receive for services
in obtaining new insurance any commission or other compensation
from any insurance company doing business in the Philippine Island,
or agent thereof, without first procuring a certificate of authority to act
from the insurance commissioner, which must be renewed annually
on the first day of January, or within six months thereafter.

therefore, there was no technical defect in the wording of the charge, so that Errors 2
and 4 must be overruled. 12

From the above-mentioned ruling, the respondent appellate court seems to imply that the definition of an
insurance agent under the second paragraph of Section 189 is not applicable to the insurance agent
mentioned in the first paragraph. Parenthetically, the respondent court concludes that under the second
paragraph of Section 189, a person is an insurance agent if he solicits and obtains an insurance for
compensation, but, in its first paragraph, there is no necessity that a person solicits an insurance for
compensation in order to be called an insurance agent.
We find this to be a reversible error. As correctly pointed out by the Solicitor General, the definition
of an insurance agent as found in the second paragraph of Section 189 is intended to define the
word "agent" mentioned in the first and second paragraphs of the aforesaid section. More
significantly, in its second paragraph, it is explicitly provided that the definition of an insurance agent
is within the intent of Section 189. Hence —

Any person who for compensation ... shall be an insurance agent within the intent
of this section, ...

Patently, the definition of an insurance agent under the second paragraph holds true with respect to
the agent mentioned in the other two paragraphs of the said section. The second paragraph of
Section 189 is a definition and interpretative clause intended to qualify the term "agent" mentioned in
both the first and third paragraphs of the aforesaid section.

Applying the definition of an insurance agent in the second paragraph to the agent mentioned in the
first and second paragraphs would give harmony to the aforesaid three paragraphs of Section 189.
Legislative intent must be ascertained from a consideration of the statute as a whole. The particular
words, clauses and phrases should not be studied as detached and isolated expressions, but the
whole and every part of the statute must be considered in fixing the meaning of any of its parts and
in order to produce harmonious whole. 13 A statute must be so construed as to harmonize and give
effect to all its provisions whenever possible. 14 The meaning of the law, it must be borne in mind, is not to
be extracted from any single part, portion or section or from isolated words and phrases, clauses or
sentences but from a general consideration or view of the act as a whole. 15 Every part of the statute must
be interpreted with reference to the context. This means that every part of the statute must be considered
together with the other parts, and kept subservient to the general intent of the whole enactment, not
separately and independently. 16 More importantly, the doctrine of associated words (Noscitur a Sociis)
provides that where a particular word or phrase in a statement is ambiguous in itself or is equally
susceptible of various meanings, its true meaning may be made clear and specific by considering the
company in which it is found or with which it is associated. 17

Considering that the definition of an insurance agent as found in the second paragraph is also applicable
to the agent mentioned in the first paragraph, to receive a compensation by the agent is an essential
element for a violation of the first paragraph of the aforesaid section. The appellate court has established
ultimately that the petitioner-accused did not receive any compensation for the issuance of the insurance
policy of Eugenio Isidro. Nevertheless, the accused was convicted by the appellate court for, according to
the latter, the receipt of compensation for issuing an insurance policy is not an essential element for a
violation of the first paragraph of Section 189 of the Insurance Act.

We rule otherwise. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor for any
person for direct or indirect compensation to solicit insurance without a certificate of authority to act
as an insurance agent, an information, failing to allege that the solicitor was to receive compensation
either directly or indirectly, charges no offense. 18 In the case of Bolen vs. Stake, 19 the provision of
Section 3750, Snyder's Compiled Laws of Oklahoma 1909 is intended to penalize persons only who
acted as insurance solicitors without license, and while acting in such capacity negotiated and concluded
insurance contracts for compensation. It must be noted that the information, in the case at bar, does not
allege that the negotiation of an insurance contracts by the accused with Eugenio Isidro was one for
compensation. This allegation is essential, and having been omitted, a conviction of the accused could
not be sustained. It is well-settled in Our jurisprudence that to warrant conviction, every element of the
crime must be alleged and proved. 20

After going over the records of this case, We are fully convinced, as the Solicitor General maintains,
that accused did not violate Section 189 of the Insurance Act.

WHEREFORE, the judgment appealed from is reversed and the accused is acquitted of the crime
charged, with costs de oficio.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 154514. July 28, 2005]

WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER

INSURANCE AND SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD., respondents.

DECISION
QUISUMBING, J.:

This petition for review assails the Decision[1] dated July 30, 2002 of the Court of
Appeals in CA-G.R. SP No. 60144, affirming the Decision[2] dated May 3, 2000 of the
Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was
no violation of the Insurance Code and the respondents do not need license as insurer
and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity
coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda)
Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer).
Subsequently, White Gold was issued a Certificate of Entry and Acceptance.[3] Pioneer
also issued receipts evidencing payments for the coverage. When White Gold failed to
fully pay its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the latters unpaid balance. White Gold on the other hand, filed a
complaint before the Insurance Commission claiming that Steamship Mutual violated
Sections 186[4] and 187[5] of the Insurance Code, while Pioneer violated Sections
299,[6] 300[7] and 301[8] in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need
for Steamship Mutual to secure a license because it was not engaged in the insurance
business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I
Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a
broker for Steamship Mutual because Steamship Mutual was not engaged in the
insurance business. Moreover, Pioneer was already licensed, hence, a separate license
solely as agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its
decision, the appellate court distinguished between P & I Clubs vis--vis conventional
insurance. The appellate court also held that Pioneer merely acted as a collection agent
of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the
appellate court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT
STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE
GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS
AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A
LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.

SECOND ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS

BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED
IN INSURANCE BUSINESS.

THIRD ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT

PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR
AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR

THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF

RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS AND
DIRECTORS OF RESPONDENT PIONEER.[9]

Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged
in the insurance business in the Philippines? (2) Does Pioneer need a license as an
insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it
does not have a license to do business in the Philippines although Pioneer is its resident
agent. This relationship is reflected in the certifications issued by the Insurance
Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung
Maritime Co., Ltd. v. Court of Appeals[10] as an association composed of shipowners in
general who band together for the specific purpose of providing insurance cover on a
mutual basis against liabilities incidental to shipowning that the members incur in favor of
third parties. It stresses that as a P & I Club, Steamship Mutuals primary purpose is to
solicit and provide protection and indemnity coverage and for this purpose, it has engaged
the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not
engaged in the insurance business in the Philippines. It is merely an association of vessel
owners who have come together to provide mutual protection against liabilities incidental
to shipowning.[11] Respondents aver Hyopsung is inapplicable in this case because the
issue in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance
business or transacting an insurance business. These are:

(a) making or proposing to make, as insurer, any insurance contract;

 (b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically

recognized as constituting the doing of an insurance business within the
meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the

foregoing in a manner designed to evade the provisions of this Code.

...

The same provision also provides, the fact that no profit is derived from the making
of insurance contracts, agreements or transactions, or that no separate or direct
consideration is received therefor, shall not preclude the existence of an insurance
business.[12]
The test to determine if a contract is an insurance contract or not, depends on the
nature of the promise, the act required to be performed, and the exact nature of the
agreement in the light of the occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called.[13]
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.[14]
In particular, a marine insurance undertakes to indemnify the assured against marine
losses, such as the losses incident to a marine adventure.[15] Section 99[16] of the
Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the
members are both the insurer and insured. In it, the members all contribute, by a system
of premiums or assessments, to the creation of a fund from which all losses and liabilities
are paid, and where the profits are divided among themselves, in proportion to their
interest.[17] Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs.[18]
A P & I Club is a form of insurance against third party liability, where the third party
is anyone other than the P & I Club and the members.[19] By definition then, Steamship
Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance
business.
The records reveal Steamship Mutual is doing business in the country albeit without
the requisite certificate of authority mandated by Section 187 [20] of the Insurance Code. It
maintains a resident agent in the Philippines to solicit insurance and to collect payments
in its behalf. We note that Steamship Mutual even renewed its P & I Club cover until it
was cancelled due to non-payment of the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance
Commission.
Since a contract of insurance involves public interest, regulation by the State is
necessary. Thus, no insurer or insurance company is allowed to engage in the insurance
business without a license or a certificate of authority from the Insurance Commission. [21]
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration[22] issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority[23] issued by the same agency.
However, a Certification from the Commission states that Pioneer does not have a
separate license to be an agent/broker of Steamship Mutual.[24]
Although Pioneer is already licensed as an insurance company, it needs a separate
license to act as insurance agent for Steamship Mutual. Section 299 of the Insurance
Code clearly states:

SEC. 299 . . .

No person shall act as an insurance agent or as an insurance broker in the solicitation

or procurement of applications for insurance, or receive for services in obtaining
insurance, any commission or other compensation from any insurance company doing
business in the Philippines or any agent thereof, without first procuring a license so to
act from the Commissioner, which must be renewed annually on the first day of
January, or within six months thereafter. . .

Finally, White Gold seeks revocation of Pioneers certificate of authority and removal
of its directors and officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30,
2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance
Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual
Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation
are ORDERED to obtain licenses and to secure proper authorizations to do business as
insurer and insurance agent, respectively. The petitioners prayer for the revocation of
Pioneers Certificate of Authority and removal of its directors and officers, is DENIED.
Costs against respondents.
SO ORDERED.
 THIRD DIVISION

REPUBLIC OF THE PHILIPPINES, G.R. No. 158085

Represented by the COMMISSIONER
OF INTERNAL REVENUE, Present:
Petitioner,
Panganiban, J.,
Chairman,
Sandoval-Gutierrez
- versus - Corona,
Carpio Morales, and
Garcia, JJ
SUNLIFE ASSURANCE Promulgated:
COMPANY OF CANADA,
Respondent. October 14, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

H
aving satisfactorily proven to the Court of Tax Appeals, to the
Court of Appeals and to this Court that it is a bona fide
cooperative, respondent is entitled to exemption from the
payment of taxes on life insurance premiums and
documentary stamps. Not being governed by the Cooperative Code of the
Philippines, it is not required to be registered with the Cooperative
Development Authority in order to avail itself of the tax exemptions.
Significantly, neither the Tax Code nor the Insurance Code mandates this
administrative registration.

The Case
 Before us is a Petition for Review[1] under Rule 45 of the Rules of
Court, seeking to nullify the January 23, 2003 Decision[2] and the April 21,
2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 69125.
The dispositive portion of the Decision reads as follows:
WHEREFORE, the petition for review is hereby DENIED.[4]

The Facts

The antecedents, as narrated by the CA, are as follows:

Sun Life is a mutual life insurance company organized and
existing under the laws of Canada. It is registered and authorized by
the Securities and Exchange Commission and the Insurance
Commission to engage in business in the Philippines as a mutual life
insurance company with principal office at Paseo de Roxas, Legaspi
Village, Makati City.

On October 20, 1997, Sun Life filed with the [Commissioner of

Internal Revenue] (CIR) its insurance premium tax return for the third
quarter of 1997 and paid the premium tax in the amount
of P31,485,834.51. For the period covering August 21 to December
18, 1997, petitioner filed with the CIR its [documentary stamp tax
(DST)] declaration returns and paid the total amount
of P30,000,000.00.

On December 29, 1997, the [Court of Tax Appeals] (CTA)

rendered its decision in Insular Life Assurance Co. Ltd. v. [CIR], which
held that mutual life insurance companies are purely cooperative
companies and are exempt from the payment of premium tax and DST.
This pronouncement was later affirmed by this court in [CIR] v. Insular
Life Assurance Company, Ltd. Sun Life surmised that[,] being a mutual
life insurance company, it was likewise exempt from the payment of
premium tax and DST. Hence, on August 20, 1999, Sun Life filed with
the CIR an administrative claim for tax credit of its alleged erroneously
paid premium tax and DST for the aforestated tax periods.

For failure of the CIR to act upon the administrative claim for tax
credit and with the 2-year period to file a claim for tax credit or refund
dwindling away and about to expire, Sun Life filed with the CTA a
petition for review on August 23, 1999. In its petition, it prayed for the
issuance of a tax credit certificate in the amount of P61,485,834.51
representing P31,485,834.51 of erroneously paid premium tax for the
third quarter of 1997 and P30,000[,000].00 of DST on policies of
insurance from August 21 to December 18, 1997. Sun Life stood firm
on its contention that it is a mutual life insurance company vested with
all the characteristic features and elements of a cooperative company
or association as defined in [S]ection 121 of the Tax Code. Primarily,
the management and affairs of Sun Life were conducted by its
members; secondly, it is operated with money collected from its
members; and, lastly, it has for its purpose the mutual protection of its
members and not for profit or gain.

In its answer, the CIR, then respondent, raised as special and

affirmative defenses the following:

7. Petitioners (Sun Lifes) alleged claim for refund is

subject to administrative routinary investigation/examination
by respondents (CIRs) Bureau.

8. Petitioner must prove that it falls under the exception

provided for under Section 121 (now 123) of the Tax Code to
be exempted from premium tax and be entitled to the refund
sought.

9. Claims for tax refund/credit are construed strictly

against the claimants thereof as they are in the nature of
exemption from payment of tax.

10. In an action for tax credit/refund, the burden is upon

the taxpayer to establish its right thereto, and failure to sustain
this burden is fatal to said claim x x x.

11. It is incumbent upon petitioner to show that it has

complied with the provisions of Section 204[,] in relation to
Section 229, both in the 1997 Tax Code.

On November 12, 2002, the CTA found in favor of Sun Life.

Quoting largely from its earlier findings in Insular Life Assurance
Company, Ltd. v. [CIR], which it found to be on all fours with the
present action, the CTA ruled:

The [CA] has already spoken. It ruled that a mutual life

insurance company is a purely cooperative company[;] thus,
exempted from the payment of premium and documentary
stamp taxes. Petitioner Sun Life is without doubt a mutual life
insurance company. x x x.

xxxxxxxxx

Being similarly situated with Insular, Petitioner at bar is

entitled to the same interpretation given by this Court in the
earlier cases of The Insular Life Assurance Company, Ltd. vs.
[CIR] (CTA Case Nos. 5336 and 5601) and by the [CA] in the
case entitled [CIR] vs. The Insular Life Assurance Company,
Ltd., C.A. G.R. SP No. 46516, September 29, 1998. Petitioner
Sun Life as a mutual life insurance company is[,] therefore[,]
a cooperative company or association and is exempted from
the payment of premium tax and [DST] on policies of
insurance pursuant to Section 121 (now Section 123) and
Section 199[1]) (now Section 199[a]) of the Tax Code.
 Seeking reconsideration of the decision of the CTA, the CIR
argued that Sun Life ought to have registered, foremost, with the
Cooperative Development Authority before it could enjoy the
exemptions from premium tax and DST extended to purely
cooperative companies or associations under [S]ections 121 and 199
of the Tax Code. For its failure to register, it could not avail of the
exemptions prayed for. Moreover, the CIR alleged that Sun Life failed
to prove that ownership of the company was vested in its members
who are entitled to vote and elect the Board of Trustees among
[them]. The CIR further claimed that change in the 1997 Tax Code
subjecting mutual life insurance companies to the regular corporate
income tax rate reflected the legislatures recognition that these
companies must be earning profits.

Notwithstanding these arguments, the CTA denied the CIRs

motion for reconsideration.

Thwarted anew but nonetheless undaunted, the CIR comes to

this court via this petition on the sole ground that:

The Tax Court erred in granting the refund[,] because

respondent does not fall under the exception provided for
under Section 121 (now 123) of the Tax Code to be exempted
from premium tax and DST and be entitled to the refund.

The CIR repleads the arguments it raised with the CTA and
proposes further that the [CA] decision in [CIR] v. Insular Life Assurance
Company, Ltd. is not controlling and cannot constitute res judicata in the
present action. At best, the pronouncements are merely persuasive as
the decisions of the Supreme Court alone have a universal and
mandatory effect.[5]

Ruling of the Court of Appeals

In upholding the CTA, the CA reasoned that respondent was a purely

cooperative corporation duly licensed to engage in mutual life insurance
business in the Philippines. Thus, respondent was deemed exempt from
premium and documentary stamp taxes, because its affairs are managed and
conducted by its members with money collected from among themselves,
solely for their own protection, and not for profit. Its members or
policyholders constituted both insurer and insured who contribute, by a
system of premiums or assessments, to the creation of a fund from which all
losses and liabilities were paid. The dividends it distributed to them were not
profits, but returns of amounts that had been overcharged them for
insurance.

For having satisfactorily shown with substantial evidence that it had

erroneously paid and seasonably filed its claim for premium and
documentary stamp taxes, respondent was entitled to a refund, the CA ruled.

Hence, this Petition.[6]

The Issues

Petitioner raises the following issues for our consideration:

I.

Whether or not respondent is a purely cooperative company or

association under Section 121 of the National Internal Revenue Code
and a fraternal or beneficiary society, order or cooperative company
on the lodge system or local cooperation plan and organized and
conducted solely by the members thereof for the exclusive benefit of
each member and not for profit under Section 199 of the National
Internal Revenue Code.

II.

Whether or not registration with the Cooperative Development

Authority is a sine qua non requirement to be entitled to tax
exemption.

III.

Whether or not respondent is exempted from payment of tax on life

insurance premiums and documentary stamp tax.[7]

We shall tackle the issues seriatim.

 The Courts Ruling

The Petition has no merit.

First Issue:
Whether Respondent Is a Cooperative

The Tax Code defines a cooperative as an association conducted by the

members thereof with the money collected from among themselves and
solely for their own protection and not for profit.[8] Without a doubt,
respondent is a cooperative engaged in a mutual life insurance business.

First, it is managed by its members. Both the CA and the CTA found that
the management and affairs of respondent were conducted by its member-
policyholders.[9]

A stock insurance company doing business in the Philippines may alter its
organization and transform itself into a mutual insurance
company.[10] Respondent has been mutualized or converted from a stock life
insurance company to a nonstock mutual life insurance
corporation[11] pursuant to Section 266 of the Insurance Code of 1978.[12] On
the basis of its bylaws, its ownership has been vested in its member-
policyholders who are each entitled to one vote;[13] and who, in turn, elect
from among themselves the members of its board of trustees.[14] Being the
governing body of a nonstock corporation, the board exercises corporate
powers, lays down all corporate business policies, and assumes responsibility
for the efficiency of management.[15]
Second, it is operated with money collected from its members. Since
respondent is composed entirely of members who are also its policyholders,
all premiums collected obviously come only from them.[16]

The member-policyholders constitute both insurer and insured[17] who

contribute, by a system of premiums or assessments, to the creation of a
fund from which all losses and liabilities are paid.[18] The premiums[19] pooled
into this fund are earmarked for the payment of their indemnity and benefit
claims.

Third, it is licensed for the mutual protection of its members, not for the
profit of anyone.

As early as October 30, 1947, the director of commerce had already issued a
license to respondent -- a corporation organized and existing under the laws
of Canada -- to engage in business in the Philippines.[20] Pursuant to Section
225 of Canadas Insurance Companies Act, the Canadian minister of state
(for finance and privatization) also declared in its Amending Letters Patent
that respondent would be a mutual company effective June 1, 1992.[21] In the
Philippines, the insurance commissioner also granted it annual Certificates
of Authority to transact life insurance business, the most relevant of which
were dated July 1, 1997 and July 1, 1998.[22]

A mutual life insurance company is conducted for the benefit of its member-
policyholders,[23] who pay into its capital by way of premiums. To that extent,
they are responsible for the payment of all its losses.[24] The cash paid in for
premiums and the premium notes constitute their assets x x x.[25] In the event
that the company itself fails before the terms of the policies expire, the
member-policyholders do not acquire the status of creditors.[26] Rather, they
simply become debtors for whatever premiums that they have originally
agreed to pay the company, if they have not yet paid those amounts in full,
for [m]utual companies x x x depend solely upon x x x premiums.[27] Only
when the premiums will have accumulated to a sum larger than that required
to pay for company losses will the member-policyholders be entitled to a pro
rata division thereof as profits.[28]

Contributing to its capital, the member-policyholders of a mutual company

are obviously also its owners.[29] Sustaining a dual relationship inter se, they
not only contribute to the payment of its losses, but are also entitled to a
proportionate share[30] and participate alike[31] in its profits and surplus.

Where the insurance is taken at cost, it is important that the rates of premium
charged by a mutual company be larger than might reasonably be expected
to carry the insurance, in order to constitute a margin of safety. The table of
mortality used will show an admittedly higher death rate than will probably
prevail; the assumed interest rate on the investments of the company is made
lower than is expected to be realized; and the provision for contingencies
and expenses, made greater than would ordinarily be necessary. [32] This
course of action is taken, because a mutual company has no capital stock and
relies solely upon its premiums to meet unexpected losses, contingencies and
expenses.

Certainly, many factors are considered in calculating the insurance premium.

Since they vary with the kind of insurance taken and with the group of
policyholders insured, any excess in the amount anticipated by a mutual
company to cover the cost of providing for the insurance over its actual
realized cost will also vary. If a member-policyholder receives an excess
payment, then the apportionment must have been based upon a calculation
of the actual cost of insurance that the company has provided for that
particular member-policyholder. Accordingly, in apportioning divisible
surpluses, any mutual company uses a contribution method that aims to
distribute those surpluses among its member-policyholders, in the same
proportion as they have contributed to the surpluses by their payments.[33]

Sharing in the common fund, any member-policyholder may choose to

withdraw dividends in cash or to apply them in order to reduce a subsequent
premium, purchase additional insurance, or accelerate the payment period.
Although the premium made at the beginning of a year is more than
necessary to provide for the cost of carrying the insurance, the member-
policyholder will nevertheless receive the benefit of the overcharge by way
of dividends, at the end of the year when the cost is actually ascertained. The
declaration of a dividend upon a policy reduces pro tanto the cost of insurance
to the holder of the policy. That is its purpose and effect.[34]

A stipulated insurance premium cannot be increased, but may be lessened

annually by so much as the experience of the preceding year has determined
it to have been greater than the cost of carrying the insurance x x x.[35] The
difference between that premium and the cost of carrying the risk of loss
constitutes the so-called dividend which, however, is not in any real sense a
dividend.[36] It is a technical term that is well understood in the insurance
business to be widely different from that to which it is ordinarily attached.

The so-called dividend that is received by member-policyholders is not a

portion of profits set aside for distribution to the stockholders in proportion
to their subscription to the capital stock of a corporation.[37] One, a mutual
company has no capital stock
to which subscription is necessary; there are no stockholders to speak of, but
only members. And, two, the amount they receive does not partake of the
nature of a profit or income. The quasi-appearance of profit will not change
its character. It remains an overpayment, a benefit to which the member-
policyholder is equitably entitled.[38]

Verily, a mutual life insurance corporation is a cooperative that promotes the

welfare of its own members. It does not operate for profit, but for the mutual
benefit of its member-policyholders. They receive their insurance at cost,
while reasonably and properly guarding and maintaining the stability and
solvency of the company.[39] The economic benefits filter to the cooperative
members. Either equally or proportionally, they are distributed among
members in correlation with the resources of the association utilized.[40]

It does not follow that because respondent is registered as a nonstock

corporation and thus exists for a purpose other than profit, the company can
no longer make any profits.[41] Earning profits is merely its secondary, not
primary, purpose. In fact, it may not lawfully engage in any business activity
for profit, for to do so would change or contradict its nature[42] as a non-
profit entity.[43] It may, however, invest its corporate funds in order to earn
additional income for paying its operating expenses and meeting benefit
claims. Any excess profit it obtains as an incident to its operations can only
be used, whenever necessary or proper, for the furtherance of the purpose
for which it was organized.[44]

Second Issue:
Whether CDA Registration Is Necessary

Under the Tax Code although respondent is a cooperative, registration with

the Cooperative Development Authority (CDA)[45] is not necessary in order
for it to be exempt from the payment of both percentage taxes on insurance
premiums, under Section 121; and documentary stamp taxes on policies of
insurance or annuities it grants, under Section 199.
First, the Tax Code does not require registration with the CDA. No tax
provision requires a mutual life insurance company to register with that
agency in order to enjoy exemption from both percentage and documentary
stamp taxes.

A provision of Section 8 of Revenue Memorandum Circular (RMC) No. 48-

91 requires the submission of the Certificate of Registration with the
CDA,[46]before the issuance of a tax exemption certificate. That provision
cannot prevail over the clear absence of an equivalent requirement under the
Tax Code. One, as we will explain below, the Circular does not apply to
respondent, but only to cooperatives that need to be registered under the
Cooperative Code. Two, it is a mere issuance directing all internal revenue
officers to publicize a new tax legislation. Although the Circular does not
derogate from their authority to implement the law, it cannot add a
registration requirement,[47] when there is none under the law to begin with.

Second, the provisions of the Cooperative Code of the Philippines[48] do not

apply. Let us trace the Codes development in our history.

As early as 1917, a cooperative company or association was already defined

as one conducted by the members thereof with money collected from among
themselves and solely for their own protection and not profit.[49] In 1990, it
was further defined by the Cooperative Code as a duly registered association
of persons, with a common bond of interest, who have voluntarily joined
together to achieve a lawful common social or economic end, making
equitable contributions to the capital required and accepting a fair share of
the risks and benefits of the undertaking in accordance with universally
accepted cooperative principles.[50]
The Cooperative Code was actually an offshoot of the old law on
cooperatives. In 1973, Presidential Decree (PD) No. 175 was
signed into law by then President Ferdinand E. Marcos in order to
strengthen the cooperative movement.[51] The promotion of cooperative
development was one of the major programs of the New Society under his
administration. It sought to improve the countrys trade and commerce by
enhancing agricultural production, cottage industries, community
development, and agrarian reform through cooperatives.[52]

The whole cooperative system, with its vertical and horizontal linkages --
from the market cooperative of agricultural products to cooperative rural
banks, consumer cooperatives and cooperative insurance -- was envisioned
to offer considerable economic opportunities to people who joined
cooperatives.[53] As an effective instrument in redistributing income and
wealth,[54] cooperatives were promoted primarily to support the agrarian
reform program of the government.[55]

Notably, the cooperative under PD 175 referred only to an organization

composed primarily of small producers and consumers who voluntarily
joined to form a business enterprise that they themselves owned, controlled,
and patronized.[56] The Bureau of Cooperatives Development -- under the
Department of Local Government and Community Development (later
Ministry of Agriculture)[57] -- had the authority to register, regulate and
supervise only the following cooperatives: (1) barrio associations involved in
the issuance of certificates of land transfer; (2) local or primary cooperatives
composed of natural persons and/or barrio associations; (3) federations
composed of cooperatives that may or may not perform business activities;
and (4) unions of cooperatives that did not perform any business
activities.[58] Respondent does not fall under any of the above-mentioned
types of cooperatives required to be registered under PD 175.
When the Cooperative Code was enacted years later, all cooperatives that
were registered under PD 175 and previous laws were also deemed registered
with the CDA.[59] Since respondent was not required to be registered under
the old law on cooperatives, it followed that it was not required to be
registered even under the new law.

Furthermore, only cooperatives to be formed or organized under the

Cooperative Code needed registration with the CDA.[60] Respondent already
existed before the passage of the new law on cooperatives. It was not even
required to organize under the Cooperative Code, not only because it
performed a different set of functions, but also because it did not operate to
serve the same objectives under the new law -- particularly on productivity,
marketing and credit extension.[61]

The insurance against losses of the members of a cooperative referred to in

Article 6(7) of the Cooperative Code is not the same as the life insurance
provided by respondent to member-policyholders. The former is a function
of a service cooperative,[62] the latter is not. Cooperative insurance under the
Code is limited in scope and local in character. It is not the same as mutual
life insurance.

We have already determined that respondent is a cooperative. The

distinguishing feature of a cooperative enterprise[63] is the mutuality of
cooperation among its member-policyholders united for that purpose.[64] So
long as respondent meets this essential feature, it does not even have to
use[65] and carry the name of a cooperative to operate its mutual life insurance
business. Gratia argumenti that registration is mandatory, it cannot deprive
respondent of its tax exemption privilege merely because it failed to register.
The nature of its operations is clear; its purpose well-defined. Exemption
when granted cannot prevail over administrative convenience.

Third, not even the Insurance Code requires registration with the CDA. The
provisions of this Code primarily govern insurance contracts; only if a
particular matter in question is not specifically provided for shall the
provisions of the Civil Code on contracts and special laws govern.[66]

True, the provisions of the Insurance Code relative to the organization and
operation of an insurance company also apply to cooperative insurance
entities organized under the Cooperative Code.[67] The latter law, however,
does not apply to respondent, which already existed as a cooperative
company engaged in mutual life insurance prior to the laws passage of that
law. The statutes prevailing at the time of its organization and mutualization
were the Insurance Code and the Corporation Code, which imposed no
registration requirement with the CDA.

Third Issue:
Whether Respondent Is Exempted
from Premium Taxes and DST

Having determined that respondent is a cooperative that does not have to

be registered with the CDA, we hold that it is entitled to exemption from
both premium taxes and documentary stamp taxes (DST).
The Tax Code is clear. On the one hand, Section 121 of the Code exempts
cooperative companies from the 5 percent percentage tax on insurance
premiums. On the other hand, Section 199 also exempts from the DST,
policies of insurance or annuities made or granted by cooperative companies.
Being a cooperative, respondent is thus exempt from both types of taxes.
It is worthy to note that while RA 8424 amending the Tax Code has deleted
the income tax of 10 percent imposed upon the gross investment income of
mutual life insurance companies -- domestic[68] and foreign[69] -- the
provisions of Section 121 and 199 remain unchanged.[70]

Having been seasonably filed and amply substantiated, the claim for
exemption in the amount of P61,485,834.51, representing percentage taxes
on insurance premiums and documentary stamp taxes on policies of
insurance or annuities that were paid by respondent in 1997, is in order.
Thus, the grant of a tax credit certificate to respondent as ordered by the
appellate court was correct.

WHEREFORE, the Petition is hereby DENIED, and the assailed

Decision and Resolution are AFFIRMED. No pronouncement as to costs.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 125678. March 18, 2002]

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF

APPEALS and JULITA TRINOS, respondents.

DECISION
YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health
care coverage with petitioner Philamcare Health Systems, Inc. In the standard
application form, he answered no to the following question:

Have you or any of your family members ever consulted or been treated for high
blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?
(If Yes, give details).[1]

The application was approved for a period of one year from March 1, 1988 to March
1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the
agreement, respondents husband was entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed therein. He was also entitled to avail of out-
patient benefits such as annual physical examinations, preventive health care and other
out-patient services.
Upon the termination of the agreement, the same was extended for another year
from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum of P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a heart attack and was confined
at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While
her husband was in the hospital, respondent tried to claim the benefits under the health
care agreement. However, petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a concealment regarding
Ernanis medical history. Doctors at the MMC allegedly discovered at the time of
Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his
answer in the application form. Thus, respondent paid the hospitalization expenses
herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital where he died on
the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila,
Branch 44, an action for damages against petitioner and its president, Dr. Benito
Reverente, which was docketed as Civil Case No. 90-53795. She asked for
reimbursement of her expenses plus moral damages and attorneys fees. After trial, the
lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the
plaintiff Julita Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late
Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid
to plaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to

plaintiff;

4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

SO ORDERED.[3]

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted
all awards for damages and absolved petitioner Reverente.[4] Petitioners motion for
reconsideration was denied.[5]Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not an insurance contract;
hence the incontestability clause under the Insurance Code[6]does not apply.
Petitioner argues that the agreement grants living benefits, such as medical check-
ups and hospitalization which a member may immediately enjoy so long as he is alive
upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also
points out that only medical and hospitalization benefits are given under the agreement
without any indemnification, unlike in an insurance contract where the insured is
indemnified for his loss. Moreover, since Health Care Agreements are only for a period
of one year, as compared to insurance contracts which last longer, [7] petitioner argues
that the incontestability clause does not apply, as the same requires an effectivity period
of at least two years. Petitioner further argues that it is not an insurance company, which
is governed by the Insurance Commission, but a Health Maintenance Organization
under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.[8]

Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest against
him, may be insured against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or

support, or in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or
prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement was his own health. The health care agreement was in the nature
of non-life insurance, which is primarily a contract of indemnity. [9] Once the member
incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the extent agreed
upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his
application. It appears that in the application for health coverage, petitioners required
respondents husband to sign an express authorization for any person, organization or
entity that has any record or knowledge of his health to furnish any and all information
relative to any hospitalization, consultation, treatment or any other medical advice or
examination.[10] Specifically, the Health Care Agreement signed by respondents
husband states:

We hereby declare and agree that all statement and answers contained herein and in
any addendum annexed to this application are full, complete and true and bind all
parties in interest under the Agreement herein applied for, that there shall be no
contract of health care coverage unless and until an Agreement is issued on this
application and the full Membership Fee according to the mode of payment applied
for is actually paid during the lifetime and good health of proposed Members; that no
information acquired by any Representative of PhilamCare shall be binding upon
PhilamCare unless set out in writing in the application; that any physician is, by these
presents, expressly authorized to disclose or give testimony at anytime relative to any
information acquired by him in his professional capacity upon any question affecting
the eligibility for health care coverage of the Proposed Members and that the
acceptance of any Agreement issued on this application shall be a ratification of any
correction in or addition to this application as stated in the space for Home Office
Endorsement.[11] (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicants medical history, thus:

I hereby authorize any person, organization, or entity that has any record or
knowledge of my health and/or that of __________ to give to the PhilamCare Health
Systems, Inc. any and all information relative to any hospitalization, consultation,
treatment or any other medical advice or examination. This authorization is in
connection with the application for health care coverage only. A photographic copy of
this authorization shall be as valid as the original.[12] (Underscoring ours)
 Petitioner cannot rely on the stipulation regarding Invalidation of agreement which
reads:

Failure to disclose or misrepresentation of any material information by the member in

the application or medical examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very beginning and liability of
Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its revelation would have resulted in
the declination of the applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.[13]

The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondents husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.[14]Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or

judgment of the insured will not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry. There is a clear
distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then
knows, to be actually untrue, or the impossibility of which is shown by the facts
within his knowledge, since in such case the intent to deceive the insurer is obvious
and amounts to actual fraud.[15] (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract.[16] Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the end, the liability
of the health care provider attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the covered benefits which
he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to
rescind a contract of insurance. The right to rescind should be exercised previous to the
commencement of an action on the contract.[17] In this case, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies
require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the
policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code
and upon request of insured, to furnish facts on which cancellation is based.[18]

None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them in such
a way as to preclude the insurer from non-compliance with his obligation.[19] Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract the insurer.[20] By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and liberally in favor
of the insured, especially to avoid forfeiture.[21] This is equally applicable to Health Care
Agreements. The phraseology used in medical or hospital service contracts, such as the
one at bar, must be liberally construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the construction conferring coverage is to
be adopted, and exclusionary clauses of doubtful import should be strictly construed
against the provider.[22]
Anent the incontestability of the membership of respondents husband, we quote
with approval the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health
Systems Inc. had twelve months from the date of issuance of the Agreement within
which to contest the membership of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if the patient was sick of diabetes
or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously
married to another woman who was still alive. The health care agreement is in the nature
of a contract of indemnity. Hence, payment should be made to the party who incurred
the expenses. It is not controverted that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement. The records adequately prove the
expenses incurred by respondent for the deceaseds hospitalization, medication and the
professional fees of the attending physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed
decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.
 FIRST DIVISION

[G.R. No. 119176. March 19, 2002]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LINCOLN

PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-
CMA LIFE INSURANCE COMPANY, INC.) and THE COURT OF
APPEALS, respondents.

DECISION
KAPUNAN, J.:

This is a petition for review on certiorari filed by the Commission on Internal

Revenue of the decision of the Court of Appeals dated November 18, 1994 in C.A. G.R.
SP No. 31224 which reversed in part the decision of the Court of Tax Appeals in C.T.A.
Case No. 4583.
The facts of the case are undisputed.
Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA
Life Insurance Company, Inc.) is a domestic corporation registered with the Securities
and Exchange Commission and engaged in life insurance business. In the years prior to
1984, private respondent issued a special kind of life insurance policy known as the
Junior Estate Builder Policy, the distinguishing feature of which is a clause providing
for an automatic increase in the amount of life insurance coverage upon attainment of
a certain age by the insured without the need of issuing a new policy. The clause was
to take effect in the year 1984. Documentary stamp taxes due on the policy were paid
by petitioner only on the initial sum assured.
In 1984, private respondent also issued 50,000 shares of stock dividends with a par
value of P100.00 per share or a total par value of P5,000,000.00. The actual value of
said shares, represented by its book value, was P19,307,500.00. Documentary stamp
taxes were paid based only on the par value of P5,000,000.00 and not on the book value.
Subsequently, petitioner issued deficiency documentary stamps tax assessment for
the year 1984 in the amounts of (a) P464,898.75, corresponding to the amount of
automatic increase of the sum assured on the policy issued by respondent, and
(b) P78,991.25 corresponding to the book value in excess of the par value of the stock
dividends. The computation of the deficiency documentary stamp taxes is as follows:

On Policies Issued:

Total policy issued during the year P1,360,054,000.00

Documentary stamp tax due thereon

(P1,360,054,000.00 divided by
P200.00 multiplied by P0.35) P 2,380,094.50

Less: Payment P 1,915,495.75

Deficiency P 464,598.75

Add: Compromise Penalty 300.00

-----------------------

TOTAL AMOUNT DUE & COLLECTIBLE P 464,898.75

Private respondent questioned the deficiency assessments and sought their

cancellation in a petition filed in the Court of Tax Appeals, docketed as CTA Case No.
4583.
On March 30, 1993, the Court of Tax Appeals found no valid basis for the
deficiency tax assessment on the stock dividends, as well as on the insurance
policy. The dispositive portion of the CTAs decision reads:

WHEREFORE, the deficiency documentary stamp tax assessments in the amount

of P464,898.76 and P78,991.25 or a total of P543,890.01 are hereby cancelled for lack
of merit. Respondent Commissioner of Internal Revenue is ordered to desist from
collecting said deficiency documentary stamp taxes for the same are considered
withdrawn.

SO ORDERED.[1]

Petitioner appealed the CTAs decision to the Court of Appeals. On November 18,
1994, the Court of Appeals promulgated a decision affirming the CTAs decision insofar
as it nullified the deficiency assessment on the insurance policy, but reversing the same
with regard to the deficiency assessment on the stock dividends. The CTA ruled that
the correct basis of the documentary stamp tax due on the stock dividends is the actual
value or book value represented by the shares. The dispositive portion of the Court of
Appeals decision states:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is

hereby REVERSED with respect to the deficiency tax assessment on the stock
dividends, but AFFIRMED with regards to the assessment on the Insurance Policies.
Consequently, private respondent is ordered to pay the petitioner herein the sum
of P78,991.25, representing documentary stamp tax on the stock dividends it issued.
No costs pronouncement.

SO ORDERED.[2]

A motion for reconsideration of the decision having been denied, [3] both the
Commissioner of Internal Revenue and private respondent appealed to this Court,
docketed as G.R. No. 118043 and G.R. No. 119176, respectively. In G.R. No. 118043,
private respondent appealed the decision of the Court of Appeals insofar as it upheld
the validity of the deficiency tax assessment on the stock dividends. The Commissioner
of Internal Revenue, on his part, filed the present petition questioning that portion of
the Court of Appeals decision which invalidated the deficiency assessment on the
insurance policy,attributing the following errors:

THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED

THAT THERE IS A SINGLE AGREEMENT EMBODIED IN THE
POLICY AND THAT THE AUTOMATIC INCREASE CLAUSE IS NOT A
SEPARATE AGREEMENT, CONTRARY TO SECTION 49 OF THE
INSURANCE CODE AND SECTION 183 OF THE REVENUE CODE
THAT A RIDER, A CLAUSE IS PART OF THE POLICY.

THE HONORABLE COURT OF APPEALS ERRED IN NOT COMPUTING

THE AMOUNT OF TAX ON THE TOTAL VALUE OF THE INSURANCE
ASSURED IN THE POLICY INCLUDING THE ADDITIONAL
INCREASE ASSURED BY THE AUTOMATIC INCREASE CLAUSE
DESPITE ITS RULING THAT THE ORIGINAL POLICY AND THE
AUTOMATIC CLAUSE CONSTITUTED ONLY A SINGULAR
TRANSACTION.[4]

Section 173 of the National Internal Revenue Code on documentary stamp taxes
provides:

Sec. 173. Stamp taxes upon documents, instruments and papers. - Upon
documents, instruments, loan agreements, and papers, and upon acceptances,
assignments, sales, and transfers of the obligation, right or property incident thereto,
there shall be levied, collected and paid for, and in respect of the transaction so had or
accomplished, the corresponding documentary stamp taxes prescribed in the following
section of this Title, by the person making, signing, issuing, accepting, or transferring
the same wherever the document is made, signed, issued, accepted, or transferred
when the obligation or right arises from Philippine sources or the property is situated
in the Philippines, and at the same time such act is done or transaction had: Provided,
That whenever one party to the taxable document enjoys exemption from the tax
herein imposed, the other party thereto who is not exempt shall be the one directly
liable for the tax. (As amended by PD No. 1994) The basis for the value of
documentary stamp taxes to be paid on the insurance policy is Section 183 of the
National Internal Revenue Code which states in part:

The basis for the value of documentary stamp taxes to be paid on the insurance
policy is Section 183 of the National Internal Revenue Code which states in part:

Sec. 183. Stamp tax on life insurance policies. - On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall
be made or renewed upon any life or lives, there shall be collected a documentary
stamp tax of thirty (now 50c) centavos on each Two hundred pesos per fractional part
thereof, of the amount insured by any such policy.

Petitioner claims that the automatic increase clause in the subject insurance policy
is separate and distinct from the main agreement and involves another transaction; and
that, while no new policy was issued, the original policy was essentially re-issued when
the additional obligation was assumed upon the effectivity of this automatic increase
clause in 1984; hence, a deficiency assessment based on the additional insurance not
covered in the main policy is in order.
 The Court of Appeals sustained the CTAs ruling that there was only one transaction
involved in the issuance of the insurance policy and that the automatic increase clause
is an integral part of that policy.
The petition is impressed with merit.
Section 49, Title VI of the Insurance Code defines an insurance policy as the written
instrument in which a contract of insurance is set forth. [5] Section 50 of the same Code
provides that the policy, which is required to be in printed form, may contain any word,
phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete
the contract of insurance.[6] It is thus clear that any rider, clause, warranty or
endorsement pasted or attached to the policy is considered part of such policy or
contract of insurance.
The subject insurance policy at the time it was issued contained an automatic
increase clause. Although the clause was to take effect only in 1984, it was written into
the policy at the time of its issuance.The distinctive feature of the junior estate builder
policy called the automatic increase clause already formed part and parcel of the
insurance contract, hence, there was no need for an execution of a separate agreement
for the increase in the coverage that took effect in 1984 when the assured reached a
certain age.
It is clear from Section 173 that the payment of documentary stamp taxes is done
at the time the act is done or transaction had and the tax base for the computation of
documentary stamp taxes on life insurance policies under Section 183 is the amount
fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary
measurement.[7] What then is the amount fixed in the policy?Logically, we believe that
the amount fixed in the policy is the figure written on its face and whatever increases
will take effect in the future by reason of the automatic increase clause embodied in the
policy without the need of another contract.
Here, although the automatic increase in the amount of life insurance coverage was
to take effect later on, the date of its effectivity, as well as the amount of the increase,
was already definite at the time of the issuance of the policy. Thus, the amount insured
by the policy at the time of its issuance necessarily included the additional sum covered
by the automatic increase clause because it was already determinable at the time the
transaction was entered into and formed part of the policy.
The automatic increase clause in the policy is in the nature of a conditional
obligation under Article 1181,[8] by which the increase of the insurance coverage shall
depend upon the happening of the event which constitutes the obligation. In the instant
case, the additional insurance that took effect in 1984 was an obligation subject to
a suspensive obligation,[9] but still a part of the insurance sold to which private
respondent was liable for the payment of the documentary stamp tax.
The deficiency of documentary stamp tax imposed on private respondent is
definitely not on the amount of the original insurance coverage, but on the increase of
the amount insured upon the effectivity of the Junior Estate Builder Policy.
Finally, it should be emphasized that while tax avoidance schemes and
arrangements are not prohibited,[10] tax laws cannot be circumvented in order to evade
the payment of just taxes. In the case at bar,to claim that the increase in the amount
insured (by virtue of the automatic increase clause incorporated into the policy at the
time of issuance) should not be included in the computation of the documentary stamp
taxes due on the policy would be a clear evasion of the law requiring that the tax be
computed on the basis of the amount insured by the policy.
WHEREFORE, the petition is hereby given DUE COURSE. The decision of the
Court of Appeals is SET ASIDE insofar as it affirmed the decision of the Court of Tax
Appeals nullifying the deficiency stamp tax assessment petitioner imposed on private
respondent in the amount of P464,898.75 corresponding to the increase in 1984 of the
sum under the policy issued by respondent.
SO ORDERED.